World Bank Group Response to the Global Economic Crisis
The global economic crisis of 2008-2009 led to a sharp reduction of growth worldwide with an increase in millions of poor persons. The World Bank Group responded with an unprecedented expansion of support that included the majority of countries suffering high levels of stress. The bulk of crisis support focused on moderately affected countries. Due to its unprecedented support, largely through traditional rather than crisis specific instruments, the World Bank now has constrained headroom for future crisis response should it become necessary.
This second phase evaluation of World Bank Group’s response to the economic crisis reaffirms some of the findings of the first phase, particularly sharply increased financing at the World Bank, as well as greater processing efficiency and disbursement speed; the positive role in crisis response of well-established country dialogue and country knowledge; and the value, for crisis response, of the Bank’s comfortable financial position at the start of the crisis. At the International Finance Corporation (IFC), the Phase II response reaffirms the broadly constant levels of investment and creative crisis initiatives that were sometimes difficult to implement rapidly. The study also confirms that the Multilateral Investment and Guarantees Agency (MIGA) provided countercyclical support to key financial institutions in Eastern Europe during this crisis.
New themes in the Phase II evaluation include the distribution of Bank Group support across its client countries measured in multiple dimensions; the appropriateness of its instruments; and the quality of its intervention in fiscal, financial and social protection sectors. The evaluation also reviews the choice of instruments used, in the broader context of other international financial institutions (IFIs) and multilateral development banks (MDBs).
The report finds that the World Bank provided lending to the majority of countries suffering high levels of stress and supported relevant financial sector and fiscal management policies in these countries. The bulk of crisis support focused on countries that turned out to be moderately affected. Crisis operations had in many cases limited short-term crisis-response policy content and in some cases fell short of solid medium-term engagement. Although the Bank provided substantial support in social protection to a number of countries, it was hampered by limited country capacity to target those who were made poor by the crisis, and, as a result, the bulk of support went to the chronically poor.
The evaluation finds that the International Bank for Reconstruction and Development (IBRD) now has considerably more limited capacity to accommodate further crisis response, if this becomes necessary. This is partly a result of the magnitude of IBRD’s lending response, the predominant use of traditional instruments, a decline in lending rates to middle income countries just before the crisis, and a decline in global interest rates, IFC’s crisis response reflected a strategic choice to protect its portfolio. It also overestimated the deterioration in portfolio quality. MIGA could have used the crisis situation to increase new crisis guarantees in line with other political risk insurers.