Author: Rakan Aboneaaj

The World Bank Group’s Evolution Roadmap: More Work Needed

At the Annual Meetings of the World Bank and IMF in October last year, shareholders asked the World Bank to come up with a set of proposals to take a larger role in climate and other global public goods. The Bank’s first response came pretty quick: by mid-December, only a couple of months after the request, the institution sent an evolution roadmap to the World Bank board. It is very much worth a read, with much to like but much to panic over, too. Unsurprisingly, given the timeline, a lot more thinking is needed.

On mission: The Bank suggests it is a good time to revisit the twin goals of eradicating extreme poverty and boosting shared prosperity in a sustainable manner. The roadmap notes that it “is expected that, by the end of the 2020s, the majority of the world’s extreme poor will… reside in LICs [low-income countries] even though they make up less than 10 percent of the global population”—suggesting an extreme poverty target is irrelevant for most client countries. With regard to shared prosperity, the document floats “adding a focus on raising national median income and paying enhanced attention to the gaps in prosperity between countries.”

I hope to say more later on a better approach, but broadly it is to suggest the Bank adopts the goals of eliminating poverty under $2.15 a day and maximizing growth away from that line. That would retain a prioritized focus on the world’s poorest while acknowledging $2.16 is still an utterly inadequate level of consumption, and growth above that level is an important global priority. This could be matched with a relative poverty target within countries. But the stranger part of the mission section of the roadmap document regards the question “how can the World Bank Group ensure appropriate focus on global challenges in its Mission statement?” The question is asked, but goes utterly unanswered—even in terms of potential options. This seems a little concerning given that the main point of the evolution process is to embed global challenges in the institution’s operational and financial model.

On volumes and subsidies: I think the roadmap is absolutely right to clarify “[t]he WBG will need substantial additional financial capacity to respond to a more ambitious, updated Mission.” The Bank Group needs (a) capital increase(s) (general or climate-specific) alongside better leverage of existing capital. I think the roadmap is doubly right on the need to protect IDA resources for IDA countries. But I don’t see how to ensure contributions to World Bank climate subsidies in middle income countries don’t come at the expense of future IDA rounds, making people in poor countries pay twice for climate change. It is also disappointing to see the implicit assumption that the one tool at hand to promote demand for lending toward global public goods is subsidies. What about movement toward less bureaucratic financing models?

And when it comes to using subsidized cash, the lack of detail is even more concerning. The document proposes attracting lots of money to provide subsidies to projects with global public good elements, but makes no case made that those resources would be used efficiently. Past climate funds inside and outside the Bank appear to be terrible at maximizing greenhouse gas reductions per dollar spent, for example, financing projects with two or three orders of magnitude differences in terms of cost per tonne of CO2 mitigated. And it is concerning that the International Finance Corporation (IFC) thinks it can build “on the lessons learned about the catalytic effect of IDA’s Private Sector Window (PSW) in LICs” to develop a multi-donor trust fund for climate, given the lesson learned about the PSW’s catalytic effect is that there really isn’t much of one at all. The nightmare scenario of financing being diverted from effective development projects in the world’s poorest countries to subsidize ineffective ‘climate’ projects in richer middle-income countries is pretty much what you would expect on this record. Before proposing the trust funds and the retained profits to back those subsidies, the Bank needs a far stronger case that resources would be effectively used and would not come at the cost of world’s poorest people who are still, at least for the moment, front and center in the first of the institution’s twin goals.

Then there is the subject of cooperation: The roadmap might leave you thinking the World Bank is the only potential source of financing for global public goods. It isn’t. There are existing global institutions already providing climate and pandemic-related financing including the Global Climate Fund, Gavi, and all of the other multilateral development banks. Perhaps they have a comparative advantage in some elements of the agenda. Discussing relative roles and responsibilities should be an urgent priority, even if it is one that clearly needs to involve shareholders, too.

Finally, on process: The considerable gaps in thinking in the document is an important reason it should have been publicly released. There are a lot of people outside the offices of 1818 H Street who have knowledge, experience, and ideas relevant to the discussion. As much to the point, the World Bank should be seeking the legitimacy that comes with an open debate on evolution, in particular in its client countries. It was impressive to create a first evolution document in two months, it was a travesty to then sit on it for a month or longer given the whole evolution discussion is meant to take only a year. Future documents regarding the evolution should released within days of Board distribution, not a few months. The Bank Group should live up to what it says in the document about ”building consensus in a transparent, inclusive, and consultative manner.”

I think the Bank can and should do more on global public goods. I agree with the roadmap that means more resources for operations in middle income countries. But those resources should be spent effectively, and they cannot come at the cost of the world’s poorest people. The roadmap is a long way from guaranteeing either outcome or even laying out the route to global consensus on how to achieve those outcomes.


Transparency and World Bank Evolution

Late last year, the World Bank Group issued a roadmap on its potential evolution in response to shareholder pressure at this year’s Bank-Fund annual meetings. The roadmap document has been widely shared with member governments. As reported by Reuters and Devex on the basis of leaked copies, it proposes reforms to the World Bank Group’s mission and operations along with increased funding and a significant move into subsidizing the provision of global public goods in middle income economies–a major overhaul. The Bank should publish the roadmap immediately.

For good reason, the World Bank has a disclosure policy that defaults to open. It is an international institution that champions transparency as a tool of good governance, and that should apply to itself at least as much as to borrower countries. The disclosure policy has an exception for deliberative documents and ‘miscellaneous memoranda’ relating to the World Bank Board. That’s maybe reasonable. But the roadmap is about redesigning the institution as a whole, involving decision-making that reaches far beyond board deliberations. As a result, I’m not even sure according to the World Bank’s own rules it should have been kept confidential.

Regardless, the semi-confidentiality of access for a connected minority is the best that can be expected for a document with such wide distribution, and is utterly inappropriate for a multilateral body. The roadmap is about the approach to be taken by a major global institution dealing with global problems using global taxpayers’ money: it is hard to think of a topic that more deserves open, global accountability. And the timing for that accountability is short: the hope is for final agreement by this year’s World Bank Annual Meeting.

Given the important contents and wide distribution, it isn’t surprising the document leaked so widely. One copy ended up with Felix Salmon at Axios, who put it online. But the Bank should still publish a copy itself right now, rather than sometime after Board discussions, and do the same for future papers related to the Bank Group’s evolution. As the roadmap itself suggests, building “consensus in a transparent, inclusive, and consultative manner” will be vital to the process of the Bank’s evolution. The World Bank Group’s board and management should act like it.


The New Model IFC Still Isn’t a Good Deal for IDA Countries

In September 2019, I wrote a blog asking “Is the New Model IFC a Good Deal for IDA Countries?” It noted that the International Finance Corporation, the private sector investment arm of the World Bank Group, had stopped handing over some of its profits to IDA, the part of the World Bank Group that makes low-interest loans and grants to governments of the world’s poorest countries. Instead, IDA had started providing cash to help finance IFC deals in IDA-eligible countries—through the Private Sector Window (PSW). The net effect:

[In 2011,] IFC invested $1.5 billion in private sector projects in (2019) IDA countries as well as providing $600 million in grants to IDA. In 2018 it invested $2.4 billion in IDA countries while diverting $660 million from potential IDA lending… net investment supported by IFC in IDA countries has fallen from $2.1 billion to $1.7 billion comparing 2011 with 2018.

That was early days for the IDA PSW, and it is time for an update. Not least, rather than estimating PSW commitments, we can use real numbers, and a revised set of IDA countries. And in 2021, IFC made a payment to IDA again. Sadly, and despite that payment, the net effect of the IFC on new investment by the World Bank Group in IDA countries continues to decline.

The blue line in the chart below shows IFC board-approved investments in countries eligible to borrow from IDA in 2022. Note it excludes some regional projects that may include IDA countries as well as projects for which there have been no disbursements to date. Under both categories, for example, is the 2021 global Build-Back-Better Emerging Markets Social, Sustainability, and Sustainability-linked Transaction Bond Fund, to which the PSW committed $60 million, but which is still pending. The gold line is the sum of IFC transfers to IDA minus IDA PSW project commitments toward IFC projects. The gray line is the sum of the gold and blue lines: a measure of IFC’s impact on World Bank Group financing of new investments in IDA countries. 

That sum averaged $2 billion a year 2011-2017 before falling to $1.2 billion 2018-2022. Take out 2018, and that later average drops to $0.6 billion. In fiscal year 2022, the currently recorded net impact of IFC financing on World Bank Group investment in IDA countries is actually negative, although hopefully that will improve as some recently approved IFC projects disburse their first payments. Also, the IDA PSW numbers are commitments, increasingly made to financing facilities rather than specific new IFC projects, much of which do not disburse (indeed, while the PSW reports $3 billion in aggregate commitments since it was created, aggregate disbursements are just $879 million and payouts to actual firms in developing countries even smaller again). But these are resources that could otherwise have been disbursed through standard IDA operations.

Figure 1. IFC-financed investments in IDA countries

 Notes: Scale is current USD billions. Sources: PSW projects (sole MGF/MIGA projects excluded), IFC projects (using IDA borrower list, excludes regional projects), IFC-IDA transfers (earlier data from US Treasury), IDA borrowers.

Back in 2019, I wrote that “IDA countries are getting less private sector financing than they could based on past record from the IFC, they’re seeing a smaller IDA allocation for lack of transfers from the World Bank’s private sector arm, and they’re losing more cash as IDA money is used to support the IFC—which is backing private investments that are generating a declining development impact.” Thankfully, IFC project development impact has apparently stopped its decline since then. But, otherwise, the situation has only worsened in the last three years. 

The IFC isn’t finding more private sector projects to support in IDA countries even with the backing of both PSW financing and retained earnings used to hire more staff to look for projects. Absent actual projects to invest in, PSW resources are increasingly committed to regional and global facilities that don’t disburse. That doesn’t help anyone, least of all IDA client countries. It is (still) past time to reconsider the new model for IFC and IDA.


The World Bank Window for Host Communities and Refugees: Opportunities for Learning and Expansion in Africa and Beyond

This blog is one in a series by experts across the Center for Global Development ahead of the 2022 US-Africa Leaders Summit. These posts aim to re-examine US-Africa policy and put forward recommendations to deliver on a more resilient, deeper, and mutually beneficial partnership between the United States and the nations of Africa.

The US-Africa Leaders Summit in Washington, DC presents an important opportunity to discuss the public good provided by African countries in hosting 7 million refugees. The US is the largest bilateral and multilateral donor to refugee responses around the world. However, with a record number of people displaced, more must be done to advance development-led approaches that recognize the reality of protracted displacement, harness the productive potential of refugees to support themselves and local economies, and respond to the shared challenges of hosts and refugees.

One critical tool that African and US officials should focus on and jointly advocate for is the World Bank’s Window for Host Communities and Refugees (WHR). Designed as an innovative financing mechanism, the WHR provides funding incentives for low-income countries to include refugees in poverty reduction efforts and other development programs and has a review framework to monitor and promote improvements in refugee policy. To date, 77 percent of the WHR has been committed to African countries, which host 72 percent of refugees who live in low-income, eligible countries.

As the largest shareholder of the World Bank (and with its recent replenishment pledge, the largest contributor to the bank’s concessional window), the US has a strong interest in ensuring the WHR provides the support host countries need to deliver positive development outcomes for host communities and refugee populations alike. And, in an era of squeezed aid budgets, multilateral development banks (MDBs) like the World Bank offer donors leverage: for every US$1 from the United States, the World Bank can provide an additional $4 to low-income countries. 

Building on its strong partnerships with country governments, focus on poverty reduction, and multi-year funding, the World Bank can more effectively support medium-term approaches such as including refugees in health and education systems (versus parallel systems) and job creation programs. For a number of African leaders, the $2.4 billion WHR is a major source of funding that is linked to their country’s development plans, in contrast to the vast majority of humanitarian aid that directly targets refugee subsistence.

Background on the World Bank’s Window for Host Communities and Refugees

The International Development Association (IDA) is the World Bank’s main tool for supporting low-income countries with concessional financing, offering low- to no-interest rate loans and grants across a variety of sectors. In 2016, the World Bank launched the $2 billion Regional Sub-Window for Refugees and Host Communities (RSW) as part of the IDA’s 18th Replenishment. The RSW lasted for three years, until June 2020, when it was redesigned as the $2.2 billion Window for Host Communities and Refugees (WHR) as part of IDA19. (IDA19 covered two, rather than three, years due to the COVID-19 pandemic and therefore only allocated $1.3 billion of the total.) The WHR continues under IDA20 with $2.4 billion in funding.

The WHR and its predecessor the RSW were created in recognition of the fact that low-income countries that host refugees often struggle to meet their development goals for their own citizens. Humanitarian and development assistance must reach both host communities and refugee populations to move beyond care and maintenance aid approaches and improve social cohesion. The WHR provides additional financing beyond the country’s typical IDA allocation, and for most countries, does so on even more favorable terms. WHR funding supports refugee-hosting countries to mitigate shocks and create social and economic development opportunities for refugees and hosts; facilitate the social and economic inclusion of refugees in host countries and/or as returnees; and strengthen country preparedness for additional refugee flows. 

The country eligibility criteria include hosting at least 25,000 refugees (or refugees make up at least 0.1 percent of the population), having a minimally adequate framework for refugee protection, and an action plan for longer-term development solutions that benefit refugees and host communities. Once a country becomes eligible, individual projects are reviewed and cleared for WHR funding by World Bank management before submission to the board for approval. Projects are expected to include efforts to improve the policy and institutional environment for refugees.

In the most recent IDA replenishment—IDA20—the World Bank committed to achieving significant policy improvement and implementation in at least 60 percent of beneficiary countries eligible for the WHR and also added new language on the importance of policy dialogue. For example, among priority activities, it highlights “support legal solutions and/or policy reforms with regard to refugees, e.g., freedom of movement, formal labor force participation, identification documents, and residency permits.”

In order to track progress, the World Bank developed the Refugee Policy Review Framework (RPRF). The framework outlines four dimensions—host communities, regulatory environment and governance, economic opportunities, and access to services—and a methodology. The first review was released in 2021 and provided detailed narratives on all dimensions for the 14 eligible countries at the time of writing. The review finds a “significant impetus for reforms,” especially at the early stages of IDA18, but noted that progress slowed amid the COVID-19 pandemic and varies significantly across contexts. For IDA20, the RPRF will be used to determine if the WHR meets its 60 percent target for significant policy improvement.

WHR funding for Africa

To date, 15 of the 17 countries that have benefitted from the WHR are in Africa: Burkina Faso, Burundi, Cameroon, Chad, Democratic Republic of Congo, Djibouti, Ethiopia, Kenya, Liberia, Mauritania, Niger, Republic of Congo, Rwanda, South Sudan, and Uganda. In addition, Bangladesh and Pakistan have received support.

Funding is notionally allocated to countries based on the number of refugees hosted, and the amounts that are eventually committed also depend on country demand, specific project due diligence approval, and other factors. Uganda, which hosts the most refugees in Africa, has received the most, including the maximum of $500 million in IDA19. 

WHR funds have been used on a variety of projects on the continent. RSW funding in Chad incentivized and supported the country’s first-ever national refugee policy that reflects the rights of refugees as laid out in the 1951 Refugee Convention. The World Bank recently approved budget support to Liberia, including resources from the WHR, based on policy reforms which include an increase in refugees’ access to public services. South Sudan has used WHR funds to improve the socioeconomic conditions of refugees and host communities by providing critical services like basic health care, COVID-19 vaccines, clean water, and education for youth. 

Recommendations to increase the WHR’s impact

US and African leaders should discuss successes of the WHR to date and commit to support  ideas to increase its impact. Areas for discussion should include:

  • Expanding the size of the WHR and assessing the levels of concessionality. An additional four countries joined the pool of eligible countries between IDA19 and IDA20, but funding for the window increased only modestly. The World Bank and its partners should assess opportunities to increase the size of the WHR both during the mid-term IDA assessment (when funds can be reallocated based on obligations and need) and in the next round of fundraising for IDA. As part of discussions on reforming and expanding MDBs to provide global public goods, IDA contributors including the US should consider the levels of concessionality offered through the WHR. It will be important to balance levels that incentivize country demand, appropriate recognition of the public good component (with many benefits accruing to others in the region and the world), and the need to preserve the leverage of donor dollars.
  • Aligning US and other bilateral funding with WHR investments: At the summit, the US could commit to co-financing WHR projects through USAID and/or State. Aligning and crowding in bilateral funding would increase the program reach and policy impact of WHR projects. As the leading donor in refugee response, the US should also work with other bilateral donors to encourage co-financing.
  • Executing on the increased focus on policy reforms, especially those that facilitate refugee economic contributions. The core promise of the WHR is that it provides an infusion of resources toward realizing the development potential of hosts and refugees. For example, the upfront costs of including refugees in education and health systems is both more efficient than creating parallel systems and yields longer-term and sustainable benefits as refugees contribute to local economies. However, these benefits only accrue if refugees are offered meaningful de jure and de facto opportunities to make these contributions. Recognizing the political sensitivity of refugee work in many contexts, the WHR has made significant progress, but more attention is required. For African countries, it is critical to make de facto reforms and track implementation progress at the local level, because funders need to see results that development carrots can actually work. US policymakers must make their support for these reforms clear at the summit and beyond, through continued diplomatic engagement on the rights of refugees across bilateral and multilateral fora. 
  • Considering independent de jure and de facto policy assessments in addition to the RPRF, and linking policy assessment to financing allocations. The WHR should increase transparency and coordination around discussions of each country’s Refugee Policy Review Framework, and how the RPRF is connected to negotiations around specific programs funded by the WHR. In addition the World Bank should consider linking policy and implementation to concessional finance allocations, so that countries with the most inclusive practices receive more per refugee hosted..
  • Promoting WHR-like tools and approaches at other MDBs and donors. The World Bank has led on the agenda of recognizing refugee hosting as a global public good, supporting development outcomes to complement humanitarian relief, and creating financial instruments to respond. The World Bank also hosts a trust fund, the Global Concessional Financing Facility, that includes other MDBs and supports middle-income countries hosting refugees. However, the contributions are ad hoc and insufficient to meet current needs. The Inter-American Development Bank has a dedicated migration program with strong leadership, but also requires additional and predictable funding. Other MDBs—including big players in Africa like the African Development Bank and the Islamic Development Bank—should learn lessons from the WHR and develop robust, development-focused instruments to provide greater support to refugee-hosting countries in their regions. The United States is a leading shareholder in almost all MDBs, and concerted US leadership to elevate such instruments could yield dividends for both displaced persons and the communities that host them. For these tools to meet their potential, they require predictable funding at levels that can meaningfully shape a country’s approach.
  • Elevating in-country coordination and consultations, including refugee and host community leaders, on the RPRF and WHR programs. Currently, the World Bank and UNHCR are systematically engaged in WHR discussions with country governments, but inclusion of other key stakeholders occurs on an ad hoc basis. The US should ensure engagement of relevant embassy staff in country dialogues to support joint prioritization and co-financing, and as mentioned above, encourage the participation of other bilateral donors. African leaders can support greater coordination across affected ministries, recognizing that support for host communities and refugees crosses sectors. Finally, all parties should work to deepen the engagement of refugees and host community members in policy and program discussions. For example, country-level coordination platforms could host regular consultations with refugee and host organizations, ensuring that convenings are substantive and tailored to facilitate participation. 

Conclusion

In October, Secretary Yellen called for reforming and expanding the MDBs to address global public goods in addition to country development priorities. For African leaders of refugee-hosting countries and US officials, the WHR, as a unique tool to provide significant development financing for a global challenge, should be a high priority for discussion.

The authors thank Cassie Zimmer, Jocilyn Estes, Erin Collinson, Clemence Landers, and Sarah Miller for their input. 

 

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