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World Bank Management Response

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CODE Chairman's Summary

Management welcomes this Independent Evaluation Group (IEG) review of World Bank support to middle-income countries (MICs). It is comprehensive in its coverage of the relevant issues. It is also timely, given that management is in the process of implementing an action plan to strengthen its engagement with International Bank for Reconstruction and Development (IBRD) partner countries. In particular, management welcomes IEG's conclusion that the Bank should continue its engagement with MICs, and it agrees that the Bank should do more to improve the quality and impact of its support to MICs. Several of the actions aimed at achieving this goal are summarized in the Management Action Record, responding to IEG's specific recommendations.

Management Views on IEG's Analysis and Conclusions
The IEG review presents valuable analysis on the relevance of the Bank's work, the effectiveness of its country programs, the sharing and use of its knowledge, the role of MICs in global programs, and Bank Group cooperation. All of these issues are important for the ongoing work to strengthen the World Bank's engagement with IBRD partner countries, implementing the strategy endorsed by the Development Committee in September 2006 (World Bank 2006e). Overall, management finds the analysis and conclusions to be in line with its own priorities for action.

Priorities for action
Since the Development Committee endorsed the strategy, management has worked to speed its implementation. The strategic priority is to improve-and customize to the diverse needs of MICs-services in each of the Bank's business lines: strategic and coordination services, financial services, and knowledge services. Management is also seeking to enhance impact through greater Bank Group synergy and international cooperation and partnerships. Key actions for improving and customizing services are as follows.

  • Strategy and coordination services. At the country level, the priority is to produce more flexible, customized country partnership strategies that integrate all Bank Group services relevant to the country, including support for the country's contribution to regional and global public goods (GPGs.) This work is going ahead on a pilot basis and will lead to a staff guidance note once other key proposals-such as on the use of country systems and the business models for supporting GPGs and delivering fee-based services-have been approved. On the global level, the priority is a business model for prioritizing GPGs for Bank engagement and the financing of that engagement, including support for countries' contributions to the provision of GPGs. The draft of a report to the next Development Committee meeting is currently undergoing Bank-wide review and will be discussed by executive directors in early September.
  • Financial services. IBRD's role in providing financial services to MICs has evolved as their needs have changed. It currently offers MICs a range of banking products and services, including flexible loans and risk-management tools to help manage volatility in interest rates, currencies, and commodity prices, as well as credit enhancement. To facilitate protecting countries' development resources, it also offers debt management advice and wealth management and advisory services. Among the actions to broaden and improve the Bank's financial and banking services, three stand out. First, the Bank continues to streamline policies and procedures with a view to reducing clients' nonfinancial costs of doing business with the Bank and enhancing the Bank's response to client needs. Notably, the Board recently approved OP/BP 8.00, "Rapid Response to Crises and Emergencies," and it will soon receive a proposal for a revised policy on the preparation, appraisal, and supervision of investment loans. Second, on the crucial issue of the use of country systems where standards are mutually agreed and verifiable, in June, executive directors reaffirmed the Bank commitment to the use of country systems, endorsed the principle of country-based pilots, and agreed on a timetable for consultations and final discussion of a methodology for pilot use of country procurement systems (World Bank 2007). Third, proposals for improving the transparency and the competitiveness of IBRD loan pricing have recently been submitted for consideration by the Board.
  • Knowledge services. The key action for meeting MICs' demand for more and better knowledge services is the development and implementation of a business model for the delivery of feebased services across the full spectrum of Bank expertise, including analytic and advisory services, technical assistance, project design and supervision, and debt management services. A draft paper has been prepared for Bank-wide review and is expected to be presented to the Board in early fiscal 2008.

Main Findings and Recommendations
IEG finds the Bank's support to MICs overall to be moderately satisfactory but suggests that the Bank can do better. It recommends that the Bank remain engaged with MICs but take steps to increase development effectiveness through these channels: draw more on MIC capacity; demonstrate best practice in its MIC support; and be more agile in providing support, including making the most of Bank Group cooperation. Management is in basic agreement with these recommendations and has actions under way or planned to address them. Details are provided in the attached Management Action Record.

 Management Action Record

Major IEG Recommendation Management Response 

Draw on MIC capacity
Bank support needs to more systematically draw on and develop each country's own expertise. To this end:

  • Management should require that country assistance/country partnership strategies and significant analytical and advisory activities (AAA) assignments plan clearly to do this.
  • The Bank ought to identify incentives and obstacles to MICs' involvement in the governance of global programs, including by producing an inventory of governance arrangements for global programs it supports and conducting a formal consultation exercise with MICs (and other developing countries).
Substantially agreed
Management agrees that it is important to draw more systematically on and develop each MIC's own expertise, in both country strategy and global program development and delivery. Management is preparing a note on World Bank responsiveness to demand for global public goods, to be discussed with executive directors in fiscal 2008. That note will include its plans for involving MICs (and other developing countries) in setting priorities and in drawing on MIC expertise. Part of this process will involve consultations with MICs. Management will also prepare a guidance note for staff on country partnership strategies with MICs that will address the issue of systematically drawing on and developing MIC country expertise, notably with regard to strategy development, economic and sector work and other AAA, and global program priorities. Lastly, management is preparing a partnership program to increase the use of MIC expertise and institutions. The fiscal 2008 Country Assistance Strategy (CAS) Retrospective will report on implementation. Management will consider the above agreed actions completed with that report.

Demonstrate best practice
Bank projects and programs must:

  • Be selected, in partnership with clients, to go beyond conventional approaches and clearly demonstrate how they will add to best practice development activity in the respective country setting
  • Show whether, when, and in what way they are expected to play a catalytic role, being scaled up using resources beyond those initially provided by the Bank.

Country programs, prepared in full partnership with MIC clients, must pay renewed attention to achieving greater effectiveness in three pressing and complex issues: combating corruption, reducing inequality, and protecting the environment. Programs need to draw on the full range of Bank and other resources available to meet these challenges

The Bank could more actively share best practice and encourage arrangements for knowledge transfer across countries, Regions, and sectors by (i) giving more weight to this goal in strategically managing staff rotation; (ii) ensuring that research and policy work goes beyond general principles and focuses on specific country-by-country needs; and (iii) reviewing the performance of the networks on this dimension.

Substantially agreed
Management agrees that it must demonstrate best practice in its support to MICs. It will do so through four actions: (i) stronger country partnership strategies developed jointly with MICs; (ii) improvements in the range of services offered to MICs, notably financial services and the blending options, with a goal to better leverage Bank support; (iii) stronger links between Bank research and MIC needs; and (iv) better management of the pool of Bank expertise across all networks to ensure timely delivery of cutting-edge support. However, although all MICs want and deserve innovative options, in many MICs there will remain a demand for more standard support that the IBRD will need to meet. Management will consider the agreed actions complete with the full report to executive directors in the fall of 2007 on implementation of the action plan to strengthen the World Bank's engagement with IBRD countries.

Enhance the Bank's agility
The Bank needs to set up a program to test new approaches for a selected group of countries, through the following:

  • A much more decisive push on the existing pilot for the use of country systems—significantly increasing the number of countries and projects actually implementing the new approach on the ground by mid fiscal 2008
  • Offering the selected MICs a new menu of support incorporating features such as fast-track procedures, faster response times, and more flexible Bank strategies
  • Accelerating the development and deployment of (i) new financial instruments such as those helping countries manage external shocks; (ii) existing and new products that help tackle subnational challenges; and (iii) new arrangements— with clear, consistent, and user-friendly guidelines—for feefor- service technical expertise, including that for project design and supervision.
Substantially agreed
Management is taking a range of actions to increase the Bank's agility in support of partner countries. The Bank will offer MICs an expanded menu of support options through a more flexible portfolio of access to expertise and financing. A major step, outlined above, is giving more flexibility to country teams in producing and implementing country partnership strategies, encouraging them to use it, and monitoring that use. Work on country systems, which will add to agility and reduce the cost of doing business, is advancing with Board endorsement in June 2007 of a plan to accelerate progress. To provide greater agility, management will continue to improve internal Bank procedures with a streamlining of investment lending during fiscal 2008. As partners' needs have changed, IBRD's role in providing financial services to MICs has evolved considerably beyond traditional lending. To help countries manage risks from interest rate, currency, and commodity price volatility, IBRD currently offers flexible loan products as well as derivative/risk-management tools for application to IBRD and in some cases non-IBRD liabilities. It offers related debt management advice and wealth management/ advisory services to assist countries in protecting their development resources. Management is accelerating the implementation of the provision of customized financial solutions support to borrowers through an enhanced internal review process. The Deferred Drawdown Option instrument is being reviewed to improve its effectiveness.

As part of its MIC strategy the Bank has been engaged in developing new market-based solutions to help countries deal with catastrophic events, with a recent launch of the first ever Regional insurance facility, for Caribbean countries, as the initial result of this effort. Work is under way to mainstream and scale up public sector financing at the subnational level under a newly established department, as a joint initiative of the IBRD and the International Finance Corporation.

Finally, management will develop a consistent framework for interested partners to draw on the Bank for fee-based advisory services and technical assistance in project implementation. Management will consider the above agreed actions complete with the report on the use of country partnership flexibility in the CAS Retrospective; the approval of the streamlined policy for investment lending; continuation of ongoing efforts to customize financial solutions and expand choice of financial services, such as those for managing external shocks and subnational financing; and the introduction of the new framework for fee-based services for interested partners. Management will report on overall progress periodically to executive directors, starting with the report to executive directors in the fall of 2007 on implementation of the action plan to strengthen the World Bank's engagement with IBRD countries.

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