AT A GLANCE: - World Bank Group President Robert B. Zoellick has set the goal of improving the financial and other services offered to middle-income countries (MICs) as one of his six strategic themes for the institution.
- These services include loans, guarantees, risk management products and analytic and advisory services that contribute to inclusive and sustainable globalization. Under the new strategy, the World Bank Group will provide much more flexible and better-priced banking services, with less red tape and shorter turn-around times. It will also provide customized, just-in-time knowledge and advisory services.
- The Group’s private sector arm, the International Finance Corporation, will help develop private sector solutions for undeveloped markets and even social needs.
- Since launching its MIC strategy in 2006, the International Bank for Reconstruction and Development (IBRD) has announced the biggest simplification and reduction in its loan pricing since the Asian financial crisis and the implementation of a new policy to make the Bank more responsive to a wider range of crisis and emergencies.
- The 79 middle-income countries eligible for IBRD assistance, which include China and India, are indispensable to the World Bank's fight against global poverty, as they are home to more than 70% percent of the developing world's population living on less than $2 a day.
Overview
At its Annual Meeting in September 2006, the World Bank – with the encouragement of its shareholder governments – committed to make further improvements to the financial and analytic and advisory services the IBRD offers middle-income countries1. Since then, World Bank Group President Robert B. Zoellick gave the strategy new impetus by committing the World Bank Group to providing middle-income countries with a diversified menu of “development solutions” as one of his six strategic themes for the institution. 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 to 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. The record economic growth of the last four years is heavily influenced by the economic successes of India and China. Exclude them from the data and the average growth rate of middle-income countries falls from 5.8% to 4.3% for the four years to 2006. While private capital flows have risen substantially, this flow has been concentrated in a limited number of countries. Fewer than a dozen middle-income countries can be regarded as established bond market borrowers able to access the market regularly at a stable cost. Other countries within the group have only sporadic access or none at all. Therefore, the majority of middle-income countries continue to rely on IBRD to mobilize investments in infrastructure, health, education, clean energy, and the environment. IBRD has also supported middle-income countries in times of crisis when their access to capital has dried up. Many middle-income countries also face daunting challenges to reduce poverty to meet the Millennium Development Goals, which set specific targets to be met by 2015. 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. Some countries have large pockets of poverty despite their great economic successes, because poverty in the richer middle-income countries tends to be regionally or ethnically concentrated. In addition, many countries still lack transparent and accountable public institutions that encourage a flourishing private sector and job creation. And many countries with sound national institutions have much weaker sub-national institutions; or they have weak processes within otherwise well-performing institutions. The World Bank’s response 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 funding 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. Many MICs also want IBRD financing as a backstop, if private market access should diminish. Increasingly, middle-income countries also want flexible loan and hedging products to reduce financial risks, as well as customized 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
In 2007, IBRD implemented its biggest simplification and reduction in loan pricing in nine years. This was followed in 2008 with the introduction of new contingency loan products and by extension of IBRD loan maturities. The Bank has also streamlined its internal procedures to reduce the non-financial costs of doing business. It is also developing market-based solutions to help countries deal with catastrophic events, and adding lending to sub-national governments as one of 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 eliminates 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. To do so, the World Bank is considering ways to provide more competitive financial assistance for development initiatives of a regional or global nature that, for example, confront the spread of diseases or tackle environmental problems. To support this approach, the Bank is looking at combining its grants and no interest loans with market-based credits provided by multilateral development banks. Combining these two sources of finance will result in lower costs to borrowers. - ### - Updated March 2008 Media Contact:
Alexander Ferguson, (202) 458 4953
aferguson@worldbank.org
[1]The Bank classifies a country according to the wealth of its population. Middle-income countries are defined as having a per capita income of between around US$1,000 and US$10,000, which may qualify them to borrow from IBRD. Low-income countries with a per capita income of less than $1,000 usually do not qualify for IBRD loans unless they have creditworthy status. Low-income countries are eligible to receive no- or low-interest loans and grants from the World Bank's International Development Association (IDA). |
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