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What do past crises tell us about coping with the economic shocks of COVID-19 (coronavirus)?

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What do past crises tell us about coping with the economic shocks of COVID-19 (coronavirus)?
The ways in which international organizations help countries respond may define not only the future trajectory of the pandemic, but also the duration of the current economic crisis and the direction of the world’s eventual recovery. IEG has studied the responses to past crises and identifies five lessons to help both countries and the World Bank Group address Show MoreThe ways in which international organizations help countries respond may define not only the future trajectory of the pandemic, but also the duration of the current economic crisis and the direction of the world’s eventual recovery. IEG has studied the responses to past crises and identifies five lessons to help both countries and the World Bank Group address the social and economic impacts of the coronavirus.   Governments the world over face a familiar, if more urgent, issue similar to past crises: how to “flatten the curve” of economic and social decline and “steepen” the curve of subsequent economic recovery when government budgets, the private sector, and households are all under stress at the same time. Developing countries face these challenges with far fewer resources and more vulnerable populations.   Five lessons  For the World Bank Group to be effective in supporting client countries cope with the social and economic crises caused by the pandemic, IEG’s crisis-related evaluations suggest that it needs to pay attention to five lessons from the past:  1. Speed and flexibility. The speed of response is of essence in these situations, as is Bank Group flexibility to adjust its programs, resources, and portfolios to support clients’ most urgent needs.  With the COVID-19 crisis unfolding much faster than the global financial crisis of 2008, this cannot be overemphasized. In fact, it appears that the Bank Group has learned this lesson: over 90 countries benefited from Bank Group support by May 1, 2020, with additional country support programs underway, barely two months after the outbreak intensified around the world. Development Policy Financing(DPF), which provides fast-disbursing budget support to client countries,  is typically the World Bank’s workhorse instrument in responding to crises because it is flexible in terms of policy focus and adaptability to different situations (e.g., standalone, programmatic, and DPF with deferred-drawdown option), and large amounts of cash can be transferred to client governments very quickly. So, it is not surprising that the Bank Group has quickly scaled up DPF support to client countries, along with other support modalities. 2. Criticality. In a crisis, there is no time to address the full range of complex reform issues that may be needed in normal times. Instead it is important to focus on the most critical issues. In this crisis, that is likely to include Bank Group interventions focused on urgent priorities with short-term impact: support for public health; budget support for social safety nets; and budgetary and financial sector support for economic recovery. This is also likely to include intensive policy dialogue and assistance to help governments shift their budgetary priorities in response to crisis needs. 3. Foresight It is not just about money. While it is critical to provide financial support and relief in the short term, it is also important to think beyond the immediate needs to recovery for the long term. That often requires focusing on select, critical policy and institutional reforms that can begin to be implemented during the crisis and extended in the recovery period to help “build back better” systems and strengthen crisis preparedness for the future. And because we now know that the world will have changed after the crisis in important ways, including how people interact, travel, work, and engage in a myriad of collective endeavors, it is important to think outside the box now on how future preparedness might look like and how it might need to differ from the past for greater effectiveness. Some countries may need to rethink their development strategies in view of these tectonic changes in the internal and external economic and social environment. 4. Focus on people – especially those in poverty. During economic crises, it is often necessary to focus on businesses and banks who are at the forefront of the economic impact, but the fact is that all crises are human crises. The COVID-19 crisis began as a public health crisis. So, focusing interventions to maximize their positive impact on the poor and vulnerable is imperative. Indeed, early Bank Group response providing urgent financing to client countries in the first two months of the crisis was concentrated on many of the poorest countries.  Given the dire warnings of hunger,  food insecurity and a rise in extreme poverty in the most vulnerable client countries, the Bank Group should be at the forefront of the fight to preserve past gains on poverty reduction and human development while working to rebuild social protection and economic systems after the crisis for more rapid recovery. 5. Coordination. The Bank Group is most effective in crises when it also coordinates effectively with its development partners. This helps the World Bank leverage its knowledge, global footprint, policy dialogue, and financial firepower with development partners on the urgent and immediate goal of helping countries cushion the impact and better prepare for recovery.  It also requires sound monitoring and evaluation based on evidence to ensure transparency and accountability. This is a clear and consistent lesson from past crises. It relates not only to collaboration with the International Monetary Fund and other multilateral agencies, but also with major donor countries, the Group of G-7 and G-20 countries (G-20), and regional development banks. On May 1, 2020, a new debt relief initiative for the poorest countries was announced.  If the World Bank Group heeds these lessons and acts in a concerted fashion, with speed, criticality, foresight, focus on people and poverty, and coordination with partners, it will be in a strong position to help its client countries deal with and ultimately overcome the COVID-19 crisis.  For more on IEG’s resources on the COVID-19 crisis and past crises, see our Lessons Library.  View the related infographic

World Bank Group Support to International Development Association Countries for Integration into Global Value Chains (Approach Paper)

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The rise of global value chains (GVCs) in the past two decades has dramatically altered the world economy. Lower transport and communication costs and falling barriers to trade have allowed firms to organize production processes into discrete tasks that can be performed in different countries. This has given rise to a finer international division of labor and greater gains from specialization, Show MoreThe rise of global value chains (GVCs) in the past two decades has dramatically altered the world economy. Lower transport and communication costs and falling barriers to trade have allowed firms to organize production processes into discrete tasks that can be performed in different countries. This has given rise to a finer international division of labor and greater gains from specialization, which opens opportunities for developing countries to participate in global production networks without having to master the entire production process. About 80 percent of global trade occurs through GVCs (UNCTAD 2013). Integration into GVCs helped many fast-growing economies increase exports, create jobs, acquire technologies, develop skills, and improve productivity. These countries have experienced the steepest declines in poverty (WTO 2017). The purpose of this evaluation is to shed light on what worked and why in Bank Group support to IDA countries’ efforts to enhance integration into GVCs. To this end, the evaluation will (i) take stock of Bank Group engagement with IDA countries on GVCs, (ii) assess the contribution of Bank Group support to enhancing GVC participation and benefits, and (iii) identify the main factors that have influenced the Bank Group’s ability to contribute to GVC-related outcomes.

Bangladesh: Strengthening Public Expenditure Management Program - Strengthening Auditor General’s Office (PPAR)

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This is a Project Performance Assessment Report (PPAR) by the Independent Evaluation Group (IEG) of the World Bank’s project on Bangladesh: Strengthening Auditor General’s Office. The project was selected as part of a pilot initiative by IEG to improve the relevance of the instrument. The PPAR draws lessons from the World Bank’s experience in the context of a challenging public financial Show MoreThis is a Project Performance Assessment Report (PPAR) by the Independent Evaluation Group (IEG) of the World Bank’s project on Bangladesh: Strengthening Auditor General’s Office. The project was selected as part of a pilot initiative by IEG to improve the relevance of the instrument. The PPAR draws lessons from the World Bank’s experience in the context of a challenging public financial management, governance, and political economy environment. The original project development objectives were to (i) strengthen the institutional arrangements of the Office of the Comptroller and Auditor General (OCAG), (ii) enhance the quality and scope of audits, and (iii) enhance the institutional capacity of the Financial Management Academy (FIMA). Reflecting government reluctance to enact the underlying legal changes required by the operation, the project development objectives were revised in 2014 to (i) strengthen the quality, scope, and follow-up of audits; and (ii) create a cadre of internationally accredited professionals in OCAG. Ratings for the Strengthening Public Expenditure Management Program - Strengthening Auditor General’s Office project are as follows: Outcome was moderately satisfactory, Risk to development outcome was substantial, Bank performance was moderately unsatisfactory, and Borrower performance was moderately unsatisfactory. Lesson from the project include: (1) Inadequate assessment of political economy risks to key reforms contributed to unrealistically ambitious project design and targets, leading to shortcomings in implementation. (ii) The project sought to implement a politically sensitive policy reform through the use of technical assistance. The objective could have been more effectively pursued through a different instrument, possibly a development policy operation. (iii) The ability for a pilot to effectively demonstrate the potential of a new way of doing business requires commitment to a systematic assessment of the pilot experience and the dissemination of lessons learned.

Mexico CLR Review FY14-19

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This review of Mexico’s Completion and Learning Review (CLR) of the World Bank Group’s Country Partnership Strategy (CPS) covers the CPS period FY14-FY19 and the Performance and Learning Review (PLR) of January 26, 2017. Mexico is an upper-middle-income country with a gross national income (GNI) per capita (in current US$) of US$9,180 in 2018. During 2014-18, the average annual GDP growth rate Show MoreThis review of Mexico’s Completion and Learning Review (CLR) of the World Bank Group’s Country Partnership Strategy (CPS) covers the CPS period FY14-FY19 and the Performance and Learning Review (PLR) of January 26, 2017. Mexico is an upper-middle-income country with a gross national income (GNI) per capita (in current US$) of US$9,180 in 2018. During 2014-18, the average annual GDP growth rate was 2.2 percent in a show of resilience in the face of a complex external environment. In the first half of 2019, economic growth came to a virtual halt owing to policy uncertainty, tight monetary conditions and budget under-execution as well as slowing global manufacturing activity. Over the longer term, Mexico’s economic growth has been below the level needed to converge toward advanced country economies. The country’s per capita GDP, which is closely related to productivity, stands at 34 percent of U.S. per capita GDP compared with 49 percent in 1980.2 Poverty rates (share of individuals living on less than the 2011 PPP US$1.90 per day poverty line) fell from 3.8 percent of the population in 2016 to 2.2 percent in 2016. There was a small decline in the Gini index from 48.7 percent in 2014 to 48.3 in 2016. IEG’s Country Program Evaluation for Mexico (2018) indicates that Mexico’s multidimensional poverty index for the extremely poor fell from 11.3 percent in 2010 to 7.6 percent in 2016, helping reduce the overall index from 46.1 percent to 43.6 percent. At the same time, income growth of the bottom 40 percent was below the population mean.

Ukraine: First and Second Programmatic Financial Sector Development Policy Loan (PPAR)

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This Project Performance Assessment Report evaluates a programmatic series of two development policy loans (DPLs) to Ukraine of $500 million each that were provided as part of an urgent international effort to assist the country when Ukraine’s financial sector teetered on the edge of collapse in 2014. A perfect storm had affected the financial system when the geopolitical situation had descended Show MoreThis Project Performance Assessment Report evaluates a programmatic series of two development policy loans (DPLs) to Ukraine of $500 million each that were provided as part of an urgent international effort to assist the country when Ukraine’s financial sector teetered on the edge of collapse in 2014. A perfect storm had affected the financial system when the geopolitical situation had descended into deep crisis arising from the Euromaidan political upheaval, the Russian Federation’s annexation of Crimea, and the armed separatist movement in the eastern part of the country that initiated open, armed conflict that at times resembled a full-scale war. The exchange rate virtually halved between the end of 2013 (Hrv 8.13 to 1 U.S. dollar) and the end of 2014 (Hrv 15.8 to 1 U.S. dollar), inflation accelerated to 24 percent, the public sector fiscal deficit exceeded 10 percent of gross domestic product (GDP), and public debt—including guarantees—spiked to 70 percent of GDP. Ratings for the First and Second Programmatic Financial Sector Development Policy Loan are as follows: Outcome was satisfactory, Risk to development outcome was high, Bank performance was satisfactory, and Borrower performance was moderately satisfactory. Lessons from the projects include: (i) Close coordination among donors is critical for DPLs to maximize the effectiveness of a jointly designed reform program. (ii) The design of DPLs needs to focus on all relevant issues, potential weaknesses, and gaps in reform measures. (iii) The presence of task teams in the field can be a critical factor in promoting financial sector reform. (iv) Weak public understanding of financial sector reforms indicates a need to expand outreach efforts to enhance political sustainability. (v) Sustainable reform is difficult to achieve in countries that have corrupt power structures and court systems. Under such circumstances, it is an open question whether World Bank assistance risks providing additional resources for rent seeking rather than support for reforms.

Philippines CLR Review FY15-19

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The Philippine economy has been growing rapidly over the past decade. However, performance on poverty reduction, inequality and human development has been persistently low. The country is also a natural disaster hotspot, with frequent typhoons, tropical storms and earthquakes. It has also been affected by internal unrest, predominantly the protracted conflict and violence on the southern island Show MoreThe Philippine economy has been growing rapidly over the past decade. However, performance on poverty reduction, inequality and human development has been persistently low. The country is also a natural disaster hotspot, with frequent typhoons, tropical storms and earthquakes. It has also been affected by internal unrest, predominantly the protracted conflict and violence on the southern island of Mindanao. The 2014 Country Partnership Strategy (CPS) was well aligned with the Philippine Development Plan (PDP) 2011-16 that aimed at reducing poverty and improving the lives of the poorest segments of the population. The subsequent PDP 2017-22 shifted some emphasis to major infrastructure investments – where the WBG has not been particularly active – but also seeks to lift about six million citizens from poverty, achieve upper-middle income status by 2022, and to deliver a comprehensive agenda for peace and development in conflict-affected areas. The WBG program as adjusted in the 2017 PLR was therefore well aligned with significant aspects of the current PDP. The CPS set out a program that was divided in five focus areas: Transparent and Accountable Government; Empowerment of the Poor and the Vulnerable; Rapid, Inclusive and Sustained Economic Growth; Climate Change, Environment, and Disaster Risk Management; and Peace, Institution-Building, and Social and Economic Opportunity – all these areas were of high priority for the country and under the PDP.

China CLR Review FY13-17

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China, with a population of 1.4 billion, is an upper middle-income country with a GNI per capita of $8,690 in 2017. During 2013-2017, the economy grew annually at 7.1 percent on average, slower than the previous CPS period of 11.0 percent. A long period of economic growth put pressure on the environment and raised serious sustainability challenges. China is now contributing around 30 percent to Show MoreChina, with a population of 1.4 billion, is an upper middle-income country with a GNI per capita of $8,690 in 2017. During 2013-2017, the economy grew annually at 7.1 percent on average, slower than the previous CPS period of 11.0 percent. A long period of economic growth put pressure on the environment and raised serious sustainability challenges. China is now contributing around 30 percent to the world’s GHG emissions, partly because it is the largest consumer of carbon for electricity. Significant gains in poverty reduction continued during the CPS period. Absolute poverty, measured at $1.90 per day (2011 PPP), dropped from 1.9 percent in 2013 to 0.5 percent in 2018. Poverty and vulnerability in China are concentrated in rural areas and lagging regions in Central and Western China. The welfare of the bottom 40 percent of the income distribution has increased steadily. The Gini coefficient dropped to .46 in 2015 after having risen to a high of .5 in 2008. China’s Human Capital Index (HCI) stands at 0.67 and ranks 45th amongst 158 countries. The CPS had two focus areas: (i) supporting greener growth; and (ii) promoting more inclusive development as well as a cross-cutting theme of advancing mutually beneficial relations with the world.

Building ownership, consensus, and credibility during economic stabilization: Lessons from Jamaica

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Building ownership, consensus, and credibility during economic stabilization: Lessons from Jamaica
This brief captures the lessons from evaluating a World Bank budget support program implemented in Jamaica—the Economic Stabilization and Foundations for Growth Development Policy Loan (DPL).This brief captures the lessons from evaluating a World Bank budget support program implemented in Jamaica—the Economic Stabilization and Foundations for Growth Development Policy Loan (DPL).

Guatemala: Enhanced Fiscal and Financial Management for Greater Opportunities DPL Series (PPAR)

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This Project Performance Assessment Report (PPAR) evaluates a series of two development policy loans (DPLs) to Guatemala: Fiscal Space for Greater Opportunities ($200 million, P131763), and Enhanced Fiscal and Financial Management for Greater Opportunities ($340 million, P133738). The assessment aims to verify whether the operation achieved its intended outcomes, to understand what worked well Show MoreThis Project Performance Assessment Report (PPAR) evaluates a series of two development policy loans (DPLs) to Guatemala: Fiscal Space for Greater Opportunities ($200 million, P131763), and Enhanced Fiscal and Financial Management for Greater Opportunities ($340 million, P133738). The assessment aims to verify whether the operation achieved its intended outcomes, to understand what worked well and what did not, and to draw lessons for the future. The objectives of the series were to (i) strengthen tax administration and tax policy, (ii) strengthen budget management and increase the results orientation of public spending, and (iii) improve the management and coordination of social policies. Ratings are as follows: Outcome was moderately satisfactory, Risk to development outcome was high, Bank performance was moderately unsatisfactory, and Borrower performance was moderately unsatisfactory. This Project Performance Assessment Report offers the following lessons: (i) Tax administration and tax policy reforms in the face of major governance issues and long-standing opposition from influential interest groups are unlikely to be successful, even if backed by the World Bank’s analytical support, policy dialogue, and financing. Under these conditions, directly and indirectly targeting the governance issues over a longer period is necessary. (ii) Achieving progress on results budgeting requires strengthening of capacity, political commitment, sound monitoring and evaluation indicators, and cross-agency collaboration. (iii) Achieving results in policy lending requires a sound results framework, a credible theory of change, close linking of objectives with policy actions, and outcome-oriented target indicators.

How to support countries that aspire to middle-income status: Lessons from Rwanda

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How to support countries that aspire to middle-income status: Lessons from Rwanda
Insights from evaluation of the World Bank Group's assistance to Rwanda in its journey toward middle-income status.Insights from evaluation of the World Bank Group's assistance to Rwanda in its journey toward middle-income status.