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While country-led poverty reduction and national development strategies continued to be important mechanisms for defining country priorities and aid strategies, several additional issues of special note moved to the forefront of the Bank’s activities during fiscal 2006. These diverse issues included improving governance and accountability, implementing a new Multilateral Debt Relief Initiative, expanding initiatives undertaken within the 2005 Africa Action Plan, developing a framework for middle-income countries, supporting agriculture in the poorest countries, cooperating with other international organizations to combat avian flu, searching for new approaches to deal with climate change, and strengthening partnerships to put in place a monitoring plan for the March 2005 Paris Declaration on Aid Effectiveness. The Bank also responded to emergencies, including the October 2005 earthquake in northern Pakistan and the May 2006 earthquake in Indonesia (see Reconstruction). Strengthening Governance and Accountability Promoting good governance, including fighting corruption and strengthening mutual accountability, is essential to achieving the MDGs. The Global Monitoring Report 2006 on the MDGs notes that corruption is a symptom of poor governance. The World Bank–International Monetary Fund Development Committee discussed the report and agreed on the need for efforts to improve governance in all countries, to help build effective states with strong national systems, and to collaborate on implementing global initiatives for improving governance, increasing transparency, and building demand for good governance at the country level in ways that strengthen ownership. Building on work over the last decade, the committee called on the Bank to lay out a broad strategy, to be discussed at the September 2006 Annual Meetings, for helping member countries strengthen governance and deepen the fight against corruption. The strategy, which should lead to clear guidelines for operations, calls for the Bank to work closely with the International Monetary Fund (IMF), other multilateral development banks, and member countries to ensure a coherent, fair, and effective approach. The Bank lent $4.6 billion for governance and rule of law programs in fiscal 2006. Programs included anticorruption measures, administrative and civil service reform, decentralization, public financial management, tax policy, procurement, and legal and judicial reform. Support for civil society organizations and media outlets also helped strengthen the Bank’s governance agenda. In addition, the Bank’s ongoing research into the causes of and remedies for corruption has produced useful diagnostic tools. These tools include a set of worldwide indicators that assess six dimensions of governance in more than 200 countries. Other indicators gauge the effectiveness of government agencies and programs. Together, these indicators can be used to formulate reforms. The Bank also partners with the IMF on the Bank-Fund Financial Sector Assessment Program and the Anti-Money-Laundering/Combating the Financing of Terrorism Program, two initiatives that strengthen the integrity of financial systems and fight corruption. The Bank also participates in the Extractive Industries Transparency Initiative, a multi-stakeholder initiative designed to ensure that the revenues from extractive industries contribute to sustainable development and poverty reduction. Within the institution, the Bank has a global hotline for reporting corruption. Reports are sent to the Bank’s Department of Institutional Integrity, which investigates allegations of fraud and corruption in Bank projects, as well as allegations of staff misconduct. The department has handled more than 2,000 cases to date, resulting in the public sanction of more than 330 firms and individuals. When appropriate, the department refers its investigative findings to the prosecutorial authorities of its member countries for further action. In the past year, the department expanded, handling 426 cases. (See www.worldbank.org/corruption and www.worldbank.org/integrity.) Initiating Multilateral Debt Relief At their July 2005 summit in Gleneagles, the leaders of the Group of Eight (G-8) nations proposed 100 percent cancellation of debt owed to IDA, the IMF, and the African Development Fund by some of the world’s poorest countries, most of them in Africa and Latin America. The new debt relief plan, the Multilateral Debt Relief Initiative (MDRI), was endorsed by the Bank-Fund Development Committee at the September 2005 Annual Meetings. Relief under the plan is provided in support of government efforts to tackle poverty and is an extension of debt relief available under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative (see Evaluation: Heavily Indebted Poor Countries Update). The MDRI should help eligible countries— those that reach the completion point of the HIPC Initiative— achieve the MDGs. The provision of IDA grants and debt relief through the MDRI, however, may increase the risk of free riding, a term used to refer to situations in which IDA’s debt relief or grants could potentially cross-subsidize lenders that offer nonconcessional loans to recipient countries. IDA grants and MDRI debt relief aim to improve prospects for long-term debt sustainability in IDA countries, and such nonconcessional lending could undermine that goal. IDA is therefore preparing an approach to address the free-rider issue that calls for increased creditor cooperation and borrower disincentives. Total debt relief under the MDRI is estimated at about $50 billion, including $37 billion from IDA alone, which is equivalent to more than a quarter of IDA’s total resources. Debt relief will be provided up front and irrevocably once a HIPC country becomes MDRI-eligible. In addition to their regular financial support to IDA, donor countries have made commitments to preserve IDA’s long-term financial capacity and replace the forgone credit reflows of IDA over the 40-year repayment period of the cancelled credits. The Board of Executive Directors of IDA approved the MDRI on March 28, 2006; IDA’s Board of Governors adopted the MDRI on April 21, 2006. IDA began implementing the MDRI at the start of fiscal 2007. (More information about the MDRI, including a list of eligible countries, is available at www.worldbank.org/debt.) Implementing the Africa Action Plan The Africa Action Plan underscores the importance of ensuring that any growth agenda benefit poor and marginalized people. The plan contains 25 initiatives focused on building capable governance structures; strengthening drivers of growth, including investments in the private sector, infrastructure, and human development; and increasing the impact of partnerships among governments, donor countries, and development agencies. The plan makes specific commitments to investments in people and infrastructure and to working more effectively with other donors that provide this support. To spur investment in infrastructure, the Africa Catalytic Growth Fund was launched in March 2006. The fund has the potential to leverage up to $1 billion annually for projects undertaken under the aegis of the Infrastructure Consortium for Africa, launched in 2005 by the African Development Bank, the African Union, the Economic Community of West African States, the New Partnership for Africa’s Development, the European Commission, the G-8, and the World Bank. Investments in human development are also under way. The Democratic Republic of Congo, Eritrea, Niger, and Zambia became the first countries to benefit from the Bank’s expanded Malaria Booster Program and scaled-up HIV/AIDS lending. For education, the Africa Action Plan commits to increased support for free primary education in 15 countries. Results have begun to emerge. In Ethiopia, for example, the enrollment rate has jumped to 65 percent; this increase is attributed to growth in entrants to the first grade. Honoring a promise to create regional centers of excellence and provide investments to achieve the gender equality MDG (see Achieving Gender Equality), the Bank facilitated a job creation and sector diversification project in Ghana. Nigeria received assistance in its efforts to improve governance and repatriate monies looted from the country’s treasury. Kenya was assisted in its work to increase transparency in national budgeting and procurement, and Sierra Leone began, with the Bank’s help, to improve inclusiveness, transparency, and accountability in local government systems. To boost export-led growth, the Bank financed the construction of border crossing points between countries of the East African Community, and between those countries and Rwanda; the Bank also supported cross-national rail concessions in Kenya and Uganda for a project leveraging private investment. Regional power sector projects suffered setbacks, however, with delays in launching electricity modernization programs in the Democratic Republic of Congo and Rwanda. The number of good African performers as measured by the Bank’s Country Policy and Institutional Assessment rose from 6 to 20 countries in 2006. (See www.worldbank.org/afr.) Financing Middle-Income Country Strategies Hundreds of millions of the world’s poor, defined as those who live on less than $2 a day, live not in the world’s poorest countries but in middle-income countries. These countries are eligible to borrow from IBRD, although the so-called “blend” countries are also eligible for IDA concessional lending. All have large unfinished social agendas, which include meeting and surpassing the MDGs. Middle-income countries also play an increasingly important role in the provision of global public goods, such as clean energy, trade integration, environmental protection, international financial stability, and fighting the spread of communicable diseases. But most face constraints in mobilizing the funds needed to invest in infrastructure, health, education, and the reform of policies and institutions essential to improving the domestic investment climate. Not all middle-income countries are able to borrow on foreign markets or access risk management instruments, and where these sources of financing are available, the maturities are often short and interest rates high. In response to the needs of this diverse group of countries, the Bank provides a flexible program of banking, finance, and knowledge services. The Bank recognizes that working collaboratively with other multilateral development banks and bilateral donors can expand the scale of involvement at the country level and maximize development impact. As a result, the multilateral development banks are preparing a joint policy paper on blending in middle-income countries. (See www.worldbank.org/middleincome.) Supporting Agriculture Agriculture remains the engine of growth in most of the world’s low-income countries. For that reason, agriculture has become a vital part of the Bank’s work in Africa and elsewhere, as reflected in Bank lending of some $1.8 billion in fiscal 2006 and the selection of agriculture as the focus of the upcoming 2008 World Development Report. The Bank’s current emphasis in this sector is on improving the rural investment climate in order to increase and diversify the production of high-value commodities that enhance farmers’ income and build market-driven agricultural innovation systems. Agriculture is linked to integrated natural resource management such as protecting watersheds, sustaining increased investment in irrigation and drainage, supporting effective forest law enforcement and sound governance, and promoting efforts to enhance the resilience of farms, forests, and fisheries to climate change. PROFISH, a new multidonor initiative, will address the threat of collapsing fish stocks. Meanwhile, the global threat of zoonoses (diseases that can be transmitted from animals to humans), such as “mad cow” disease and avian flu, has brought the issue of livestock management and animal health back to the top of the development agenda. (See www.worldbank.org/essd.) Containing Avian Flu By the end of fiscal 2006, 55 countries had reported outbreaks of the H5N1 strain of the highly pathogenic avian influenza in wild birds and domestic poultry, causing the death of more than 200 million birds and severe damage to rural livelihoods, especially in the poorest regions of developing countries. The World Health Organization has voiced concerns that the H5N1 virus could mutate into a form that could eventually cause a human flu pandemic. That, in turn, could disrupt the global economy by generating losses on the order of $1.25 trillion in a severe scenario, cause substantial loss of life, and increase poverty in developing countries. To minimize this possibility and to protect rural livelihoods from animal disease, response to potential outbreaks must be coordinated at national, regional, and international levels. Doing so requires substantial financial resources. The Bank is working closely with international technical agencies, multilateral agencies (notably, the Office of the United Nations Senior Influenza Coordinator), donors, and client countries to coordinate activities. In November 2005, the Bank, the Food and Agriculture Organization, the World Health Organization, and the World Organization for Animal Health cosponsored a global influenza meeting in Geneva to explore possible coordination mechanisms. In January 2006, the Bank, the European Commission, and the Chinese government cosponsored an avian flu pledging conference in Beijing. Pledges amounted to almost $1.9 billion within a flexible financial framework, which ensures that donors can use instruments convenient to them to contribute to a well-defined, integrated, country-owned plan. By the time of the first stocktaking of international action in Vienna, Austria, in June 2006, more than $1.1 billion had been committed to finance specific programs launched by countries and international and regional organizations. The Bank has pledged up to $500 million of IBRD and IDA financing under its Global Program for Avian Influenza, and by the end of June 2006, it had approved $147.4 million to eleven countries to prevent or respond to outbreaks of avian flu and prepare for a possible human flu pandemic. The international community’s instruments to address avian flu also include a newly established $75 million multidonor Avian and Human Influenza Facility, for which the Bank is the trustee. (See www.worldbank.org/avianflu.) Responding to Climate Change The global community faces a major challenge in securing affordable and cost-effective energy supplies to underpin economic growth and poverty reduction while preserving the environment. The recent Bank report, Clean Energy and Development: Toward an Investment Framework, addressed developing-country energy needs and access to energy services, controlling greenhouse gas emissions, and helping developing countries adapt to climate risks. The report concluded that an extensive array of technologies exists to provide the required energy services, but policy reform in the energy sector is urgently needed to stimulate the roughly $300 billion a year of investment required. Expansion of energy services is essential for poverty reduction and economic development, but any expansion must minimize the greenhouse gas emissions that contribute to climate change. Mitigating these emissions will cost additional tens of billions of dollars annually. These funds could be provided through innovative financial instruments that the Bank is currently assessing in cooperation with partners and the private sector. Although all countries are vulnerable to climate change, the recent report emphasizes that the poorest countries and their poorest citizens are among the most vulnerable; however, these countries should not be expected to bear the additional costs of transitioning to a low-carbon economy. Adapting to climate variability and change is a priority for developing countries and will require the transfer of existing technologies, the development of new ones, and the revision of existing planning standards and systems. (See www.worldbank.org/climatechange.) Working with Subnational Governments The World Bank Group recognizes the importance of decentralization efforts among client governments and the growing need of subnational governments (regional, state, provincial, municipal, and local jurisdictions and their entities) to implement their own development plans. To meet this need, the Bank Group is increasingly providing direct technical assistance and IFC financial support to subnational governments without sovereign guarantees. Building on the experience of the IFC’s Municipal Fund, the Bank and IFC are developing a joint program that will mainstream subnational development activities in the Bank Group. Once initiated, the Subnational Development Program will manage and coordinate technical assistance and lending to subsovereign governments and draw on Bank and IFC resources to increase investment and institution building. The aim of the program is to help countries create financially viable and fiscally responsible subnational entities. Among other activities, the program will facilitate development of local credit markets and will mobilize local private financing. Most new projects to be financed through the program are expected to be in the infrastructure sector. Pursuing Greater Aid Effectiveness The March 2005 Paris Declaration recognized that aid volumes and aid effectiveness must be raised to achieve the MDGs and support country efforts to strengthen governance and improve development performance. The declaration set a clear agenda for the harmonization and alignment of donor assistance and for managing for results that is being implemented in 5 countries (Ghana, Mozambique, Tanzania, Uganda, and Vietnam). Good progress is being made in 10 additional countries, and elements of the agenda are being implemented, though less systematically, in 40 more. During fiscal 2006, the Bank participated in international efforts to establish a plan for monitoring implementation of the Paris Declaration’s 56 detailed commitments. An effort to establish a baseline for the agreed-on indicators was launched in May 2006, the first-ever opportunity for a simultaneous study and coordination of aid in a large number of countries. Impediments to broader progress remain, however, even in countries where governments and donors are working on the agenda. These impediments include inadequate data, inappropriate staff incentives (in donor agencies and governments), institutional rigidities, poor communication, and insufficient institutional leadership in some donor agencies. (See www.aidharmonization.org.) RECONSTRUCTION EVALUATION: HEAVILY INDEBTED POOR COUNTRIES UPDATE © 2006 The International Bank for Reconstruction and Development/The World Bank |
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