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Financial Management in World Bank Operations

Financial management, procurement and disbursement arrangements are core elements of the fiduciary framework for World Bank's operations. Together these arrangements are intended to provide reasonable assurance that the funds provided by the Bank are used appropriately and only for the intended purposes. Reasonable assurance is achieved by the application of World Bank Financial Management (FM) policy and guidelines. The World Bank seeks to develop FM policies and guidelines that are consistent with generally accepted international standards and codes, and to apply them in individual operations in ways that support the development of sustainable FM capacity in the country as a whole. FM staff oversee the application of these policies and guidelines in lending operations.

The Bank's FM work in each country is determined by the country's development priorities and institutional environment, and by the nature of the Bank's engagement, as defined in the  Country Assistance Strategy (CAS). Country priorities and institutions influence the size and nature of its development programs as well as the objectives and design of Bank-financed operations (projects, programs, etc.).

In its operations, the World Bank uses two basic types of lending instruments: investment loans and development policy loans. Investment loans have a long-term focus (5 to 10 years), and finance goods, works, and services in support of economic and social development projects in a broad range of sectors. Development Policy loans have a short-term focus (1 to 3 years), and provide quick-disbursing external financing to support policy and institutional reforms.

The Bank has a robust FM policy framework and risk-based operating model outlined for investment operations. The aim with FM arrangements for investment lending operations is to ensure that Bank loan proceeds are used for eligible expenditures. Therefore, for each investment project (including those financed by trust funds) it is required that satisfactory arrangements are in place for budgeting, funds flow, internal controls, accounting, financial reporting, and auditing. The use of country FM systems (PDF, 3.5 Mb) — use of the country's institutions and applicable laws, regulations, rules and procedures for the operation being supported by the Bank — is actively encouraged, where the Bank has assessed these systems to be adequate.

In development policy operations, Bank loan proceeds provide balance of payments and budget support to borrowing governments, and are not used to finance specific transactions or programs. Instead of focusing on the specific use of Bank funds, therefore, the Bank focuses on the borrower's overall use of foreign exchange (work on which is normally led by the IMF) and management of budget resources. FM work is directed to ensuring that the Bank's knowledge of these arrangements is current, that it is taken into account in decisions concerning development policy lending, and that it is appropriately disclosed.

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