Strengthening Middle-Income Country Engagement

Published in Nawafid Maghreb #5

At its Annual Meeting in September 2006, the World Bank committed to make further improvements to the financial and analytic and advisory services the IBRD offers middle-income countries.

More information Middle-Income Countries Country lending:  Morocco -Tunisia Strengthening the World Bank’s Engagement with IBRD Partner Countries (pdf)

MICs play an increasingly important role in development as repositories of extensive experience in what works and what does not, and also as vital contributors in the creation of global public goods - development initiatives of a regional or global nature - such as clean energy, trade integration, and fighting the spread of communicable diseases. With the adoption of this strategy, the Bank recognizes that a more effective partnership with MICs will ultimately strengthen the Bank's support for low-income countries.

The challenge for middle-income countries
Middle-income countries' economies have grown at an average 5.8% over the four years to 2006, the fastest rate in three decades. These countries have also worked hard to make themselves more immune from financial market shocks, such as the Asian financial crisis of the 1990s, which threw millions of people into poverty. They have strengthened their balance sheets by adopting more prudent fiscal policies, built up international reserves and cut their reliance on government borrowing.

For a number of middle-income countries, rewards for these efforts mean greater access to cross-border flows of private capital. Investors and lenders increasingly recognize that these countries are a good place to put their money. Net private capital flows to developing countries reached a record high of $483 billion in 2005. Yet despite progress by middle-income countries as a group, the economic performance of individual countries varies considerably and also face daunting challenges to reduce poverty.

These countries account for two-thirds of the world's population and are home to more than 70% of the developing world's poor people who live on less than $2 a day. In addition, many countries still lack transparent and accountable public institutions that encourage a flourishing private sector and job creation.

The World Bank's contribution
Some MICs no longer see the need for significant financial support from IBRD, because they have large foreign currency reserves and are in a good budget position. However, others still have large investment needs that include funds for public infrastructure projects and social services.

They see finance from institutions like IBRD as critical to their implementation of policy and institutional reforms and for investment in the human and physical capital necessary to attract private financial investment in their countries.

Increasingly, middle-income countries also want flexible loan and hedging products to reduce financial risks, as well as customized financial advice to help manage the broader balance sheet risks their governments face. Another significant trend is the middle-income countries' call on the Bank for knowledge services, economic and sector work and technical assistance without an accompanying loan.

The Bank is responding to these changing needs by taking action in each of its three business segments:

• Strategy and Coordination Services
  The Bank has raised the quality and flexibility of Country Partnership Strategies (CPS) and Country Assistance Strategies (CAS) in order to meet the variable needs of middle-income countries and improve the delivery of its expertise and finance to client countries. The CPS and the CAS are reports that spell out in detail the countries' and the Bank's development priority areas. They describe planned operations, including proposed lending, studies and other technical assistance. The Bank is also moving faster in response to issues related to global public goods.
  
• Financial Services
  The Bank is streamlining its internal procedures to reduce the non-financial costs of doing business; ensure that IBRD's loan pricing remains competitive; consider ways to make financing vehicles more accessible to qualified borrowers with strong fiscal and macroeconomic policies; develop market-based solutions to help countries deal with catastrophic events; and add lending to sub-national governments as one of the its mainstream products.
  
• Knowledge services
  Improvements to the delivery of the Bank’s knowledge services in middle-income countries include developing and implementing a business model that offers fee-based services by World Bank experts, flexibly and on a larger scale - a model that strengthens the links between the Bank’s research work and operations and eliminating impediments to the global delivery of expertise. Stronger partnerships with middle-income countries draw on their expertise and include wider collaboration with local institutions to further enhance the Bank’s support for middle-income countries.

Another improvement is to encourage greater cooperation among World Bank Group institutions - the IBRD, IDA, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) - so that they work more closely together to advance development, as well as ensure greater collaboration between the World Bank Group and other development partners at work in middle-income countries. All these measures concern Maghreb countries and should directly benefit them.