How has the World Bank performed on the global economic crisis?

November 26, 2009

     By Duncan Green     

IEG coverThe Bank’s Independent Evaluation Group – an internal watchdog with a good track record in spotting problems, has just published an evaluation of the World Bank Group (WBG)’s response to the crisis. Nothing earth-shattering, but here are some highlights:

‘The greatest part of the Bank’s response in fiscal 2009 was a large increase in IBRD lending, which was unprecedented relative to previous levels but modest in relation to crisis- induced needs and to support from other sources (for example, the IMF or the European Union)…. IBRD disbursements increased from $10.5 billion in fiscal 2008 to $18.5 billion in 2009. IDA disbursements remained flat—though high by historical comparison—at some $9 billion.

Given high unemployment and a rise in poverty, a positive feature in the current response is the greater prevalence of social protection programs. The bulk of the increase in Bank funding has gone to middle- income countries, where the initial impact of the crisis and its potential systemic effects are large and where significant pockets of poverty exist. But this pattern raises questions about the adequacy of financial flows to poorer countries. As the crisis unfolds, the World Bank must be careful to ensure adequate attention to low- income countries and to poverty reduction.

The larger increase in lending to middle- income rather than low- income countries reflected specific country demand, but also the greater ability of middle- income countries to formulate their financing needs and tap sources more quickly.

With the pressure of high oil prices moderating, fiscal space shrinking, and the urgency of the financial crisis, attention to the environment and climate change issues in most countries has declined. The WBG has recently promoted renewable energy and energy efficiency and helped mobilize funds to address climate change. But the WBG can play a stronger role in ensuring that actions on climate change are integral to the crisis response.’

So this means the money has largely flowed to middle income countries (that’s what the IBRD funds) rather than the low income countries that IBRD tableborrow from the IDA (see table).

The report concludes with 7 key issues:

1. ‘Poverty must be the main focus of WBG support.’ That means focusing more on poor countries, and on poor people within middle income countries.

2. ‘Close attention to fiscal deficits and debt sustainability is essential’ Increased borrowing could lead to a new debt crisis, especially in low income countries.

3. ‘The shift toward a greater role for government needs to be balanced with efforts to re- invigorate the private sector…. This underscores the importance of the WBG support for government capacity, transparency, and effective regulatory policy. At the same time, the private sector will need to be supported, in particular by facilitating its access to finance.’

4. ‘Environmental and climate change issues need to be integrated into crisis response and recovery strategies.’

5. ‘WBG capital adequacy issues need to continue receiving attention.’ Concern here that bunging a load of money at the crisis could leave the Bank short of cash for future crises.

6. ‘A strong focus on results is vital.’ Interesting point here. Big money, and the need to borrow more means the Bank will have to show results, but also ‘the greater focus of conditionality on few prior actions with strong country ownership’ means that the Bank will have to demonstrate actual results, for example in terms of poverty reduction rather than say ‘the countries complied with our conditionalities, so at least we got some policy reforms that we wanted.’

7. ‘Complacency needs to be avoided and preparedness enhanced.’ i.e. get ready for the next crisis, guys.

November 26, 2009
Duncan Green