Selection of states needs to give more weight to the poorest states that are willing to address development problems. Although World Bank's engagement with high-performing states added value, experience shows that it is possible to achieve results in the poorest states through persistent work with committed state counterparts and strong partnership with the federal government and other donors. At the same time, it would still be possible to engage better-off states through the use of development policy lending and reimbursable technical assistance.
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Scope of engagement at the state level needs to ensure a focus on public finance management, the provision of lower- cost instruments for high-capacity states, and establishment of direct cooperation with states. Using lower-cost lending instruments, such as development policy loans, multisector investment loans, and reimbursable technical assistance (fee-for-service), seems to be a more natural choice for high-capacity, better–off states, and will help to redirect more resources to work with poorer and low-capacity states. At the same time, advisory services can be a convenient entry point for the World Bank to expand direct cooperation with state governments.
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Modalities of engagement can include the provision of expanded knowledge services, assistance with risk hedging, partnerships with donors, and the assurances of implementation through federal laws and programs. There is great demand for more knowledge sharing and expanded knowledge services, both within the World Bank and across the countries. More client participation in analytical work will improve the sense of ownership. This will increase the chances of linking it with lending and will ensure consideration of local conditions. At the same time, it is critical to get the buy-in of the federal government through assurance that state-level lending will not only stay within the federal rules, but also will help reinforce the implementation of federal laws and programs.
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