Category: Blog

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Policymakers from across the world will gather in Washington next week at the Spring Meetings of the World Bank and International Monetary Fund. These meetings come at a critical moment for the World Bank, with major discussions underway around how to evolve the organization to better meet today and tomorrow’s global challenges. And while there is broad consensus on the need for reform, this week is an opportunity for shareholders to articulate more precisely what this means in practice.

Here’s what global development experts from three continents are watching as global policymakers meet in DC next week:

Ensure Africa’s voice is heard at the 2023 World Bank Group Spring Meetings

By the African Center for Economic Transformation (ACET)

In 2022, 667 million Africans—39 percent of the continent’s population—lived in extreme poverty, with the COVID-19 pandemic pushing an additional 55 million Africans below the poverty line. As the paradigm for international development shifts to prioritize global public goods, and with the range of financing options broadening, development partners must continue to prioritize achieving the Sustainable Development Goals (SDGs) and reducing poverty. In particular, multilateral development banks (MDBs) have a crucial role in maintaining a laser focus on these goals in the coming decades.

Structural changes to the global financial architecture, including MDB reforms, need to be informed by African perspectives and policy priorities. Africa’s leaders are slowly starting to coalesce around some coordinated positions concerning debt, concessional flows, MDB reforms, and climate finance. Led by President Macky Sall of Senegal, more African countries are now preparing for the Summit for a New Global Financial Pact in France in June. President William Ruto of Kenya has announced a Climate Action Summit for September 2023, and some African governments are now engaging on the Bridgetown Agenda, although it remains focused largely on the priorities of middle-income countries. The Spring Meetings provide a unique opportunity for finance ministers to advocate for key MDB reforms and adaptations to development finance. These should include redirecting Special Drawing Rights and on-lending to regional development banks, overhauling the Common Framework, mobilizing an annual SDG stimulus of $500 billion, and urging developed countries to deliver compensation for climate change-related loss and damage.

Providing key platforms for African voices, including civil society, policy institutes, and governments, is critical. These can be official avenues, such as during the G20 deliberations or the Spring Meetings, but they can also include informal or new platforms. For example, the African Center for Economic Transformation (ACET) and Finance for Development Labs (FDL) are convening African policy institutes through the Amplifying Africa’s Voice initiative to highlight ongoing research and undertake collaborative analysis to inform African leaders.

To ensure that global policy decisions are truly representative of the diverse and nuanced African perspectives, it is crucial to have a strong African voice. The continent’s varied economies, debt situations, and ongoing crises necessitate a tailored approach to policymaking. Without sufficient African participation, global policies may not accurately reflect the best interests of the continent.

The emergence of several informal forums is a positive development, but official events such as the Development Committee and the International Monetary and Financial Committee must also reflect African perspectives. This will enable us to build upon these perspectives over the next six months and ensure that reforms in MDBs achieve a balance between SDGs and global public goods, increase concessional flows, support climate adaptation financing, and facilitate a just transition towards sustainable energy.

Building trust on multilateralism through balanced World Bank reforms

By Ye Yu, Deputy Director, Institute for World Economy Studies, Shanghai Institutes for International Studies

While the World Trade Organization has been weakened and marginalized with its Dispute Settlement Mechanism at an impasse, the World Bank is being pursued by its shareholders to play a much larger role in dealing with global challenges and providing global public goods (GPGs). The revival of the Bretton Woods Institutions after the global financial crisis is worth celebrating and provides new hope for multilateralism.

To ensure trust in the effectiveness of multilateralism in the context of the current World Bank reform agenda, several major concerns need to be addressed. A fundamental issue is how to overcome political constraints on the supply side and ensure that meaningfully additional resources are mobilized. By far, most attention has focused on tapping the potential of existing MDB resources, which incurs the least costs for shareholders. Considering the extremely conservative financial disciplines of MDBs in general, this is an important and necessary step. However, when international monetary conditions and regulatory disciplines are tightening, it is likely that only several billions of dollars can be added annually for the World Bank—far from the hundreds of billions expected by the G20’s Expert Panel on the MDBs’ Capital Adequacy Frameworks (CAF). Shareholders need to invest more cash in both the IBRD and IDA for them to mobilize the private sector. More open discussions should be held on the World Bank’s capital increase options. As this involves reshuffling the World Bank’s governance structure, it will be a key issue in testing the relations between traditional and emerging shareholders.

Understandably, before substantially additional resources can be promised, concerns about resource reallocation are intensifying on the demand side. First is a concern about the trade-off between recipient countries’ national agenda priorities and GPGs, subject to more accurate definition. Developing countries are more interested in seeking growth and jobs rather than GPGs when they are facing slower world demand and higher financing costs. There is also concern that the current reform initiative could lead to more resource transfer to middle-income countries for the purpose of GPGs when the World Bank is warning about low-income countries’ debt difficulties and 100 million people returning to extreme poverty due to the impacts of the pandemic. The increasing inadequacy of the IMF-centered global financial safety net further squeezes the World Bank’s development resources as the bank needs to rush in to fill in the liquidity gap facing the developing world.

In addition, the current reform agenda may lead to increasing fragmentation of the international development financing architecture, and hence incremental management costs for borrowing countries. Although international institutions, including the United Nations and the World Bank, are working hard to consolidate the trust funds, major shareholders are pushing for new earmarking options within the IBRD and IDA, not to mention the broader competition between the UN and World Bank on climate financing. The donors that are driving the World Bank reform agenda need to be more sensitive to the concerns of the demand side.    

While the CAF measures can be implemented immediately, a longer-term integrated negotiation approach is warranted for a more balanced multilateral agreement that accommodates the diverging interests of major parties. The successful conclusion of the World Bank Group reform package on sustainable financing in 2018 exhibited the value of a holistic negotiation approach.

Banking sustainable development: Beyond the World Bank

By Rogerio Studart, Centro Brasileiro de Relações Internacionais

To accelerate the transition towards sustainability, trillions of dollars in investments in more sustainable infrastructure, technologies, and businesses are needed. Developing nations require more fiscal space to increase public investment, and more private and philanthropic patient capital, especially in a moment of debt overhang. The IMF has been asked to find innovative ways to overcome binding fiscal constraints, while MDBs have been urged to expand their balance sheets and attract patient private capital to finance their projects, beyond the twin goals of ending extreme poverty and promoting shared prosperity.

However, to successfully originate quality sustainable projects and provide appropriate funding, MDBs may need to find innovative business models. One proposed solution is to develop a cooperative “constellation” of development banks, including multilateral, regional, national, and subnational institutions. These institutions can jointly foster and rapidly augment project development capacity and manage different risks using joint financial instruments. Blended finance can help reduce the cost of capital in national currencies and expand access to sustainable, socially and environmentally responsible patient capital for developing countries.

As the shareholders of the Bretton Woods institutions are also principals of their local development financial institutions, IMF and World Bank governors could immediately direct these institutions to expand cooperation and present success metrics based on the expansion and scaling of sustainable projects in developing economies. In conclusion, one effective way to change the focus and level of support of the multilateral financial system is to use the Spring Meetings to think about a new development support system beyond the World Bank.

To better respond to today’s global crises, the MDBs must transform themselves. The MDB Reform Accelerator is mobilizing the evidence-based analysis and strategic outreach needed to ensure MDB reform delivers real results for development, climate, and other global challenges. 

The world has changed since the creation of the International Monetary Fund and the World Bank—the world’s first international financial institutions—over 75 years ago. The shared challenges facing humanity have only grown more pressing and existential. From pandemics to climate change to financial distress and the looming public debt breakdown, the world is entering an era of polycrises, characterized by a multiplicity of shocks, to which countries of the Global South are most exposed. At the same time, these countries face tremendous development challenges. Some are on the path to achieving milestones by implementing appropriate safety nets and adopting frontier technologies that allow them to leapfrog over the development process. Others risk falling further behind.

Closing the income gap between countries will require that each makes the right policy choices, but it will also require more funding dedicated to building resilience, preventing shocks, and mitigating the impact of recurrent crises. The latest World Investment Report suggests that achieving the Sustainable Development Goals will require closing a $4 trillion funding gap. For decades, the network of multilateral development banks (MDBs) and international financial institutions more broadly played a key role in working towards achieving these objectives, through concessional finance, project finance, and close country monitoring. The World Bank and the other MDBs have been key players in reducing extreme poverty and promoting shared prosperity.

But as recent events show, the financial firepower and mission of the MDBs now need updating. Successive shocks have left the MDBs unable to properly balance the risks threatening the global economy and the specific needs of developing countries. Many around the world are calling to reform these institutions to also address threats like climate change and pandemics. Thanks to their know-how and extensive experience, the MDBs are increasingly recognized as the most promising instrument both to mobilize needed additional financial flows for these global challenges—which have the potential to set back development progress—and to fight poverty and support development in emerging markets and developing countries.

While there is general agreement about the need to reconsider the financial model and missions of the MDBs, the tools and reform agendas among the different institution are very diverse. It is crucial that this reform process includes the voices and perspectives of a broad range of experts, policymakers, and other stakeholders, and it should focus on making MDBs more useful for their clients. The perspectives of recipient countries who borrow from the MDBs should be at the heart of these debates.

The time for reform is now

Political momentum is strong and there are many key opportunities in the coming year to define the reform agenda, including the upcoming Spring Meetings of the World Bank and the IMF, the installment of a new World Bank president in June, the Paris Summit for a New Global Financial Pact in June, the G20 Leaders’ Summit in September, the Annual Meetings of the World Bank and IMF in October, and COP28 at the end of the year. These milestones offer the opportunity to catalyze substantial reforms to create a stronger, well-functioning, and relevant MDB system.

From our standpoint, as think tanks focused on international development or from the Global South, we hope to seize this momentum to contribute to that effort and share our views on what should be expected from this reform.

To that end, the Center for Global Development (CGD), the Policy Center for the New South (PCNS), and the Reinventing Bretton Woods Committee (RBWC) will host a conference to bring together perspectives of the Global South in the MDB reform agenda in Rabat, Morocco on September 11-12, just ahead of the Annual Meetings. The conference will gather academics, think tank experts, and policymakers to put forward reform ideas and amplify borrowing country perspectives on the MDB reform agenda. The main conclusions of this conference will feed into the debates—and hopefully, the actions taken—at the official gathering of finance ministers and central bank governors a month later.

In the run-up to this conference, CGD and PCNS alongside the Centro Brasileiro de Relações Internacionais (CEBRI), the Center for Social and Economic Progress (CSEP), the African Center for Economic Transformation (ACET), and the Shanghai Institute for International Studies (SIIS) have come together to launch the MDB Reform Accelerator. Our objective is to bring together a wide network of researchers from think tanks across emerging markets, low-income countries, and advanced economies to analyze MDB reform. Under the auspices of the Accelerator, we share research and analysis on what is needed for the MDBs to modernize and deliver results for global challenges like climate change while also staying true to their development mandate.

Watch this space.

 

Karim El Aynaoui is Executive President of the Policy Center for the New South, and Dean of the Faculty of Economics and Social Sciences and Executive Vice-President of the Mohammed VI Polytechnic University. From 2005 to 2012, he worked at the Central Bank of Morocco as the Director of Economics, Statistics and International Relations. Prior to this, he served as an economist at the World Bank. He holds scientific and advisory positions in various institutions, including the Malabo-Montpellier Panel, the Moroccan Capital Market Authority, and the French Institute of International Relations. He is also advisor to the CEO and Chairman of the OCP Group, and serves as a board member of the OCP Foundation and as a global member of the Trilateral Commission. He holds a PhD in Economics from the University of Bordeaux.

The World Bank’s evolution is a large part of the international response to global challenges like climate change and pandemic risks, with significant attention on amounts and sources of money. But less attention is paid to an inconvenient truth: few policymakers and experts know what works to make measurable progress against global challenges. On climate and development, for example, knowledge is sparse; demonstrating that a project or policy’s climate impact is “real, measurable and additional” remains a work in progress.

Generating and using evidence is imperative to enhance both the development and the global impact of public and aid spending. There has been significant improvement on the development side, including new data and methods and a growing global community of evaluators. But still, only a small share of development programs is rigorously evaluated.

With global challenges high on the international agenda and financing set to increase in the coming years, a big push on evidence, backed by dedicated resources, is essential. The potential rate of return is immense: better data on results could save hundreds of millions in mistargeted or ineffective spending—and importantly, could reduce potential trade-offs with funding for poverty reduction and development more generally.

This note makes the case for a reinvigorated evidence agenda to boost the impact of financing for development and global public goods, recognizing synergies and trade-offs between these dual goals.

Global action, local impact: Evidence for development

Generating and using evidence to improve programs and public policies is good value for money. Several examples demonstrate the impact of evidence on lives improved and money saved across sectors and regions.

Our recent CGD Working Group on New Evidence Tools for Policy Impact spotlighted areas of significant progress in the evaluation and evidence ecosystem to better harness the value of evidence, including growing interest from policymakers in using evaluation evidence to inform programs and policies; a growing global community of researchers, organizations, and partnerships conducting evaluations; and advances in data and methodologies that enable faster, lower-cost studies.

Still, major challenges persist. Across government, aid agencies, and other international organizations, funding, capacity, and institutional incentives for evidence generation and use remain limited

As a result, we know surprisingly little about the results of spending on development. Only 10 percent of evaluations conducted or commissioned by bilateral agencies like USAID and the German Institute for Development Evaluation are impact evaluations. And less than 5 percent of World Bank projects since 2010 have been subject to impact evaluation. While not every policy or project requires or would benefit from a formal impact evaluation, more representative evidence on the effectiveness of operations is needed given the huge opportunity costs associated with less cost-effective uses of scarce development, global health, and climate spending

For instance, the best social interventions are 10 to 100 times more cost-effective than the average interventions; these differences generally hold up across global health, education, climate change, and other social interventions and apply in rich and poor countries alike. For climate mitigation specifically, the (limited) data we have so far suggests the most cost-effective interventions could be 260 times as effective as the least effective ones.  

CGD’s Working Group on New Evidence Tools for Policy Impact offers specific recommendations to enhance the policy value and use of this type of rigorous evidence for global development, including designing evaluations that start from the policy question and decision space available, advancing locally grounded evidence-to-policy partnerships to develop and shape these studies, and enhancing incentives to strengthen use of such evidence. 

Local action, global impact: Evidence for global public good

The recent spotlight on global challenges comes with a renewed imperative to harness results and evidence for greater impact. While there are conceptual and measurement issues that will need to be tackled (more below), we still know far too little about how effective spending on global challenges is. 

“Global public goods” (GPG) refer to institutions, mechanisms, and outcomes that benefit people across country income groups and extend to both current and future generations. In economic terms, they are considered non-rival and non-excludable, meaning one country’s benefit does not affect or exclude benefit by others. CGD and others have long discussed the role of multilateral institutions like the World Bank in taking a GPG approach to tackling global challenges like climate change and pandemic preparedness, which defy borders and disproportionately affect the poorest and most vulnerable

Not all GPG efforts can—or should—be rigorously evaluated, and the social benefits of additional information on some specific areas and programs are likely to be much greater than others. Both policymakers and funders should make strategic and intentional decisions on when to invest in and collect more evidence, both for GPGs and development programs. Our working group report suggests using a “value of information” approach to proactively consider and prioritize evaluation investments with the greatest potential social returns, including in areas that receive substantial resources and have a sparse evidence base.

Areas like climate mitigation and pandemic preparedness represent large and growing areas of concessional finance. Filling substantial knowledge gaps in these areas would address high-value decision-making needs. But doing so will require additional dedicated resources for data and evidence-related activities, including both generating individual studies and using bodies of evidence that bring together different studies and types of data.

Climate mitigation

Mitigation has hugely consequential global benefits. One ton of greenhouse gas reduction or removal anywhere has impact everywhere, meaning that the local benefit of mitigation is a tiny fraction of the global shared benefit. Many middle-income countries have growing emissions, and while the specific outcome trade-offs of using public expenditure and aid on climate mitigation versus other areas are important to consider, they remain understudied.  

Climate finance provided and mobilized for low- and middle-income countries totaled over $83 billion in 2020, with over 80 percent in loans and grants from public budgets. Climate-relevant projects currently account for one-third of bilateral ODA, and recent assessments suggest total financing needs for climate in the trillions of dollars. And as mentioned, the World Bank continues to rethink its mandate and tools to effectively deploy more climate finance. According to a new CGD paper, climate mitigation finance from the Climate Investment Funds and Green Climate Fund has generally been channeled to the countries and sectors with the highest emissions. But resource allocation across the largest recipients is not fully aligned with the size of country emissions, nor does allocation seem to optimize for additionality and catalytic impact with these concessional resources. Bringing more and better data and evidence to bear on resource allocation decisions could yield substantial benefits.

Yet, as previous CGD research has shown, we know surprisingly little about the effectiveness of spending on climate. For instance, out of 10,000 impact evaluations in 3iE’s database, less than 120 were tagged as “climate adaptation,” “climate mitigation,” and “climate resilience” (see figure). Cost-effectiveness evidence is also scant. What little is known shows highly variable results and cost-effectiveness estimates. A recent audit found that the European Commission’s 15-year effort to help 80 countries address problems from climate change had no demonstrable impact on countries’ climate resilience. And using the Green Climate Fund’s ex-ante estimates of project cost-effectiveness, the most cost-effective programs prevent over 200 times more emissions than the least effective. Despite the huge implications of these differences, we have far too little evidence to draw from to assess the climate impact of development projects or the development impact of climate projects. 

Stepping back, we acknowledge that defining and measuring mitigation externalities and marginal benefits involves underlying complexities and is not yet well developed. But more should be done to strive for measurement rigor; empirically evaluating cost-effectiveness or cost-benefit should be a priority, not just focusing on semi-artificial or ex-ante results measurement. Given the common challenges and measures of success, evaluation efforts should also see substantial collaboration.

Number of impact evaluations recorded by key words

Source: Reproduced from Cichocka and Mitchell, 2022 “Climate Finance Effectiveness: Six Challenging Trends” CGD Policy Paper 281. 

Pandemic preparedness

The next pandemic is a matter of when, not if. But because the health and economic consequences are felt differentially across countries, the return on investment in pandemic preparedness varies significantly. Again, while the trade-offs related to different uses of public expenditure and/or aid are likely important, they are understudied. 

Development assistance for health in 2021 totaled $67 billion; “preparedness” historically has made up roughly 2-10 percent of development assistance for health, depending on definitions and how you slice and dice the data. With a new fund established at the World Bank and the annual funding gap for pandemic preparedness estimated at 10 billion, we should see an uptick in spending (beyond ODA) in the years to come. 

We have little evidence on the effectiveness of pandemic preparedness interventions and surveillance systems in different country contexts. What we have are lists of policies and actions (even indicators are not fully agreed upon). But what we need is clear evidence on a menu of “best buys” for preparedness, taking into account the notional capital and recurrent costs of various multi-component surveillance systems to assess how much health impact can be bought with a given system. The WHO’s recently launched Mosaic Respiratory Surveillance Framework, which can help national authorities identify priority surveillance objectives and the best approaches to meet and evaluate them, is a step in the right direction.

But given remaining gaps, resources are currently deployed in uncoordinated and fragmented ways. It is unclear what is working for what purpose to deliver better outcomes. Information on costs and benefits from different perspectives (national vs. regional vs. global; ex-ante and during) is not just “nice-to-have knowledge” but should inform real-world resource allocation, including at the newly created Pandemic Fund

Trade-offs and synergies

When it comes to generating evidence in these areas, there are important differences and trade-offs to consider. For instance, the ultimate outcomes we’re working towards through GPGs relate to avoiding worst case scenarios (i.e., an absence measured by proxies), which is fundamentally different from development outcomes. There are also unanswered questions around how to measure and account for the differences in local and global benefits of GPGs. Evaluations can also be used to help unpack distributional questions about to whom the benefits from these investments accrue

Across the board, more evidence can mean more impact. With the tools at our disposal, we should keep the focus on recognizing lessons from the past; building on progress; increasing funding; improving incentives; and recognizing the interconnectedness between development, climate mitigation, and preparedness goals. As more financing for global challenges is deployed in the coming years, data and evidence use is needed to shift resources towards the most effective approaches and deliver demonstrable results.

What next? A closer look at the World Bank

Policymakers and practitioners must act now to integrate evidence into their efforts to tackle global challenges—and evaluation and evidence funders and practitioners must also take action to integrate high-value GPG-related questions into their evidence agendas. 

For example, as the World Bank operationalizes its 2021 Strategic Framework for Knowledge and advances institution-wide reforms outlined in its evolution roadmap, all while preparing for a new president to take the helm, linking its agendas on global challenges and knowledge generation would help keep the focus on real-world impact. 

The Strategic Framework for Knowledge includes little mention of the evidence agenda for global challenges like pandemic preparedness and climate. But we are glad to see the evolution roadmap emphasize how the World Bank can “further strengthen its focus on outcomes by strengthening investment in data, impact evaluation and results architecture,” noting that impact evaluations are currently underutilized across the bank’s portfolio and that investment in data generation and capacity in developing countries is inadequate. The roadmap recognizes the need for increased investments in impact evaluation to guide domestic spending, inform operations supporting GPGs, and “enhance the quality of project design and implementation by informing evidence-based mid-course corrections and filling knowledge gaps that then benefit subsequent projects.

But translating these intentions into real progress is where the rubber meets the road. As part of CGD’s working group, we highlighted ways the World Bank can leverage knowledge generation for policy impact, including embedding impact evaluation and related evidence activities across its operational structure and developing sectoral, regional, and country learning agendas. And achieving meaningful progress will require additional resources be dedicated for evaluation and evidence activities, as noted in the roadmap.

By prioritizing even a small share of resources for evidence-related functions, the World Bank’s leadership and shareholders would assure that all resources are spent more effectively and efficiently. Specifically, the bank needs a range of evaluation structures to work with country partners to inform policy and lending operations to make timely adjustments and generate and sustain policymaker demand for evidence, while also protecting the integrity and independence of the research to remain high-quality and credible. In terms of resources, funding for impact evaluation currently depends on insufficient—and at times uncertain—external trust fund financing and fragmented operational interest. New resources are needed to undertake evaluations more strategically and systematically across the World Bank’s evolving portfolio.

In addition to these measures, the World Bank’s board and management could consider the following actions to finance evaluation and evidence production and use:

1. include attention to the dual agenda in data, research, and evaluation as part of organizational KPI revisions within the roadmap process;
2. set aside a defined allocation of new financing mobilized by the bank to address global challenges;
3. ensure all new GPG-focused projects have some evaluation resources attached, or ensure the top 10 percent (by value) of new GPG projects are evaluated; 
4. support trust funds to carry out longer-term research projects that focus on specific regions or global challenges and go beyond the timelines of specific operations; and 
5. embed knowledge management within the World Bank’s Governance Global Practice, which could then pursue joint ventures with other global practices as a way to contribute to strengthened in-country evidence functions and capacities, building on collaboration between DIME and the Global Governance Practice. 

Regardless of the financing mechanism, using evidence to inform investment—and disinvestment—decisions is our best shot at meeting the challenges of today and tomorrow. 

The current World Bank model focuses on reducing poverty and promoting equitable growth, while considering environmental and social sustainability. Programming of resources is country-driven, and resources are allocated to programs and investments according to priorities of client government authorities. Despite the appeal of this approach and its many benefits, it has left numerous global public goods (GPGs), particularly those related to climate change, underfinanced, undermanaged, and unachieved. The resulting limited levels of investment and programs have significant global cost and, potentially, extreme ramifications. While there has been considerable reflection on the question of mandate, as well as on options for improving financial engineering of the multilateral development banks (MDBs) to increase resources to better address GPGs, there has been little attention given to reforms and changes in the internal business model that would be required at an MDB like the World Bank if it were to implement a new global mission on climate change. This paper examines the changes in the internal business model that would allow the World Bank (or other MDBs) to better address climate change—and, with some adjustments, potentially, other GPGs.