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A Focused Assessment of the International Development Association’s Private Sector Window

Management Response

Management of the World Bank thanks the Independent Evaluation Group (IEG) for the report A Focused Assessment of the International Development Association’s Private Sector Window: An Update to the Independent Evaluation Group’s 2021 Early-Stage Assessment. The report provides an overview of the Private Sector Window (PSW) and many insights into its functioning. Management thanks the IEG team for the analysis conducted under a tight schedule. The evaluation, alongside management’s own PSW update “IDA20 Mid-Term Review: Private Sector Window Utilization and Implementation,” should provide the 20th Replenishment of the International Development Association (IDA20) Mid-Term Review (MTR) discussions with a good basis of performance and identify emerging issues. Six years of implementation of the PSW have provided rich experiences relevant to the priorities of the World Bank evolution and the new playbook. The window deploys concessional resources (IDA) and blends them with private capital (International Finance Corporation [IFC] and Multilateral Investment Guarantee Agency [MIGA]) to rebalance project risk-return characteristics such that commercial projects can achieve development objectives in the poorest and riskiest markets. As noted in the MTR of the World Bank’s strategy on fragility, conflict, and violence (FCV), 2020–25, Blended Finance Facilities like PSW can help create new markets, derisk projects, reduce first-mover costs and incentivize investments in FCV. This agenda becomes even more critical as a majority of the world’s extreme poor people are projected to be living in FCV by 2025.

International Development Association and International Bank for Reconstruction and Development Management Response


Management is pleased with the overall findings of the report, including that the PSW has enabled IFC and MIGA to scale-up investments, mobilize capital, and enter new countries and sectors. The findings of this evaluation demonstrate the progress made in PSW implementation since the IEG completed its early-stage PSW evaluation in 2021, when the performance had been assessed to be “mixed.” The coverage of countries has increased from 8 in 2018 to 39 in 2023. The report shows that PSW has helped mitigate the effects of the recent global crises, which is noteworthy as there has been a deterioration in overall investment conditions in IDA and FCV countries during PSW implementation. The report also confirms that a growing number of PSW-supported projects were in sectors that IFC and MIGA “had never invested in” prior to PSW (45). These attest to the contribution of IDA resources and the collaboration across World Bank Group institutions to address market failures, catalyze private sector development, and create markets in support of growth and job creation.

Management is also pleased with the strong uptake in usage of PSW resources and welcomes the evidence attributing this to improvements in PSW administration and increased trust across IDA, IFC, and MIGA. This is particularly encouraging given the slow start under the 18th Replenishment of IDA, when only 53 percent of allocated resources were used. PSW window resources were used almost entirely in the 19th Replenishment of IDA and are on course for full use in IDA20 if current levels continue through FY24–25. The report suggests that the scale-up in usage is attributable to improvements in PSW administration including more efficient paperwork and approval processes, filling up of knowledge gaps related to functioning of the window, and increased trust among the three agencies. This experience provides lessons for implementing the new Bank Group playbook for greater institutional collaboration.

Management appreciates the report’s recognition that PSW projects have addressed private investment constraints better than non-PSW projects and notes the opportunities for increasing PSW’s nonfinancial additionality. In line with the rationale for setting up the PSW, the window is addressing constraints to private sector development, including the absence of local currency financing, market disruptions owing to exogenous factors, and unfavorable business environments. At the same time, management notes the report’s conclusion that the PSW portfolio has not yet demonstrated a visible improvement in some of the nonfinancial additionality when compared with non-PSW projects, particularly those related to standard-setting and knowledge, innovation, and capacity building. Management considers this an area for improvement.

As noted in the report, PSW has followed a “minimum concessionality principle” (xi) and management continues to pay close attention to this issue. On average, concessionality in PSW-supported projects in low-income IDA countries is 7 percent of total project cost, while it is 6.7 percent in PSW-supported projects in lower-middle-income countries. Over time, and especially in IDA20, PSW concessionality levels have increased due to external factors like deteriorating market conditions. Analysis undertaken by staff shows that the level of PSW concessionality is influenced by the structure and risk profile of the instrument, with the Local Currency Facility showing the highest subsidy levels due to the high forex and interest-rate risks in operating markets.

Although it is still early days of implementation for several PSW operations, management notes the results that are being delivered and the additional leverage achieved. Staff analysis shows that PSW-supported transactions are generating between 1.0 and 1.3 million direct, indirect, and induced jobs in IDA-only and IDA FCS countries. Additionally, they are expanding access to health care for over one million patients, supporting more than 170,000 farmers, installing renewable energy capacity of 560 MW, and reducing annual greenhouse gas emissions by over 490,000 tons of CO2-equivalent. There is also increased leveraging of IDA resources—since inception, $3.9 billion of PSW approvals have mobilized $20.3 billion of additional capital in eligible markets from IFC, MIGA, and other third-party investors, including development finance institutions and purely commercial private sources (as of June 2023). The resulting mobilization ratio of 5.2 times surpassed management’s initial expectation of 4.0.


Management agrees with the first recommendation to enhance the modeling of the risks taken by the PSW to better leverage IDA capital. Gaining insight into the risk and return profiles of individual PSW facilities can enhance overall financial performance and better deployment of IDA capital without increasing IDA losses in the future. As part of the ongoing review of IDA’s capital adequacy framework, the IDA Chief Risk Officer has conducted a comprehensive risk modeling exercise for the PSW. Forthcoming discussions during the IDA20 MTR will involve considering a reduction in the capital set aside for the PSW, currently set at 100 percent, to enhance PSW capital allocation. Increasing the leverage of IDA capital by lowering the capital set-aside will enable PSW to incorporate additional instruments that enhance private capital mobilization. Pending endorsement by IDA participants, PSW is planning to introduce two new MIGA facilities: a Trade Finance Guarantee and a Liquidity Support Guarantee.

Management agrees with the second recommendation that IDA, IFC, and MIGA report their respective financial results of the IDA PSW. A regular financial management report of PSW that includes the financial results of IDA, IFC, and MIGA respectively, would enhance the ability of management and the Board of Executive Directors to make informed capital allocation decisions across diverse facilities and instruments, drawing on the unique strengths of each institution for impactful private sector investments. Management will work on the reporting details and responsibilities for implementing this recommendation as part of the Management Action Record process.

International Finance Corporation Management Response


IFC management welcomes IEG’s evaluation A Focused Assessment of the International Development Association’s Private Sector Window: An Update to the Independent Evaluation Group’s 2021 Early-Stage Assessment and values the engagement and collaboration with IFC throughout the preparation of the evaluation.

IFC management welcomes IEG’s positive assessment of the IDA PSW. It validates the significant achievements of the PSW and suggests that the PSW is on track to achieving its original intent, namely to mitigate the uncertainties and risks to high-impact private investment in IDA and IDA FCS markets. Specifically, management notes IEG’s favorable conclusions about the significant acceleration in PSW usage, the role of the PSW in enabling private sector activity that otherwise would not be possible, and the PSW’s role in catalyzing private capital thereby freeing up scarce public resources. Further, the PSW has advanced the expansion of IFC’s country and client reach, enabling IFC to deepen its support for local business and micro, small, and medium enterprises. As the report notes, “concessionality is an enabling condition for PSW transactions . . . . [Operating] without concessionality may still allow IFC and MIGA to provide financing to the higher-rated enterprises in PSW-eligible countries but would allow them to work only with a limited number of the target groups they need to reach (for example, microfinance companies high-risk manufacturing firms, and banks providing services to women and SMEs)” (xiv–xv). Further, the report also recognizes that PSW was critical in mitigating the effects of unforeseen crises (including the COVID-19 pandemic and the recent food and energy crisis) to enable IFC financing in PSW-eligible countries.

IFC appreciates the report’s confirmation of the rigorous process IFC follows to ensure that PSW transactions meet the development finance institution Blended Finance Facilities, including the minimum concessionality principle. The report makes two points that we would like to clarify (33). First, the report links the principle of minimum concessionality with portfolio-level financial risk management of PSW. Minimum concessionality is assessed for each project to help estimate the level of subsidization—the goal being to use the least amount of subsidy required for bankability. This is a distinct concept and should not be conflated with actual or expected financial loss. Thus, it has no relevance for portfolio-level financial risk management of PSW. Second, we would like to emphasize that estimating the level of subsidy is done at project inception and is intended to aid the decision-making and approval process. Recalculating the level of subsidy throughout the project life cycle and at closure would add little meaningful information to support the rationale for using blended finance and provide no benefit for decision makers or clients.

Management acknowledges the report’s observation that IFC’s PSW projects underuse nonfinancial additionalities. IFC has sharpened its articulation of nonfinancial additionality after the 2019 rollout of IFC’s Revised Additionality Framework. IFC is also focusing on realization and delivery of nonfinancial additionality by providing industry expertise, capacity-building advisory and better monitoring to PSW-eligible countries. For instance, IFC has increased its capacity to deliver environmental and social knowledge and standard-setting advisory (one of the most common forms of nonfinancial additionality) by locating more staff in the field in challenging markets. This allows IFC to undertake in-depth country-level interventions, tackling systemic Environmental, Social, and Governance risks at firm, market, or regulatory levels in countries like Ethiopia, Papua New Guinea, and Kosovo.

IFC management regrets that PSW governance was out of scope for this report. It is important to note that when the PSW was established, it was considered a pilot and guardrails were put in place to support its governance and management. With six years of experience of the PSW and more than 200 projects, it is critical to review the governance structures to assess what is working and what can be improved and streamlined or both to ensure an efficient deployment of funds.


Recommendation 1: IDA, IFC, and MIGA would benefit from enhanced modeling of the risks taken by the PSW.

Management fully agrees with IEG’s conclusion that usage of the PSW could be optimized by better leveraging IDA’s capital. As stated in the report, IDA’s practice of setting aside capital for maximum potential losses under the PSW is highly conservative. Given the robust and growing demand for the PSW (IFC’s PSW pipeline is currently over $2 billion, indicating that IFC is likely to exceed its IDA20 envelop), revisiting the capital framework is key to unlocking additional funds that could support higher PSW allocations. Earlier this year, the IDA Chief Risk Officer—the entity responsible for risk management of IDA capital, including the PSW—initiated its first risk modeling analysis in relation to PSW leverage. The review points to the potential to free up significant funds by reducing IDA’s capital provisioning. We look forward to a discussion of this analysis at the IDA20 MTR. Finally, we note IEG’s point on including an analysis of usage of the pooled first-loss coverage in the modeling exercise, and suggest that it would be beneficial to assess all PSW products rather than limiting the review to one instrument.

Recommendation 2: IDA, IFC, and MIGA should assess and report the financial results of the PSW to Bank Group management and the Board.

IFC agrees with the recommendation and sees value in the reporting of financial results of the PSW to management and the Board. IFC management extends its full cooperation to IDA to implement more comprehensive reporting, and notes that IFC already provides regular financial reports to IDA for IFC’s PSW investment operations to support IDA’s risk, financial, and accounting reporting under an agreed legal framework. Management will work on the reporting details and responsibilities for implementing this recommendation as part of the Management Action Record process.

Multilateral Investment Guarantee Agency Management Response

MIGA welcomes the IEG report A Focused Assessment of the International Development Association’s Private Sector Window: An Update to the Independent Evaluation Group’s 2021 Early-Stage Assessment. The report is indeed timely as it aligns with the IDA MTR of the PSW. MIGA would like to express its gratitude to IEG for its productive engagement with MIGA’s operational and evaluation counterparts throughout the process of drafting the report. Despite the tight timeline for its preparation, IEG provided early briefings on the findings, which MIGA appreciated.

The report updates IEG’s earlier findings on the IDA PSW, especially its findings regarding the increased usage of the MIGA Guarantee Facility (MGF) in IDA20. This presents a positive shift from the previous assessment of low usage under the IDA18 cycle. Specifically, the report mentions that the MGF experienced an increase in usage in IDA20, after having relatively stable deployments in IDA18 and IDA19.

The report highlights the specific targeting of MIGA projects toward addressing constraints that hinder private investment in countries eligible for IDA and classified as fragile and conflict-affected situations. MIGA’s unique value lies in its ability to mobilize third-party capital in transactions that investors may have otherwise refrained from. This insurance against binding constraints for private investors has played a crucial role in catalyzing investments in challenging business environments, as recognized by the report. Additionally, the report confirms the role of MGF in enabling MIGA to expand its operations into new countries and sectors and addresses emerging crises caused by the COVID-19 pandemic.

Despite its relatively small size, the MGF has proven to be one of the most efficient facilities of IDA PSW. MIGA is pleased to report that the MGF has had the least concessionality among all IDA PSW facilities, standing at 1.5 percent of total project costs. Furthermore, it boasts the highest “mobilization ratio,” which is calculated as the total project cost over the amount of the PSW used in the project at the time of Board approval. For every $1 of the MGF, there is a total mobilization of $12.2.

The report advocated enhanced modeling of the risks taken by the PSW. In particular, the report suggests an approach to modeling that uses default data from the past six years and other proxy sources of data to evaluate risk profiles under different stress scenarios. However, MIGA deems this approach to be insufficient and raises concerns about the potential for an inadequate allocation of IDA risk capital. MIGA emphasizes the necessity of adopting a more prudent risk modeling strategy that incorporates a longer period of risk events, rather than relying solely on the records of realized losses from the past six years of IDA PSW.

Comments on Recommendations

Recommendation 1 focuses on enhanced modeling of the risks taken by the PSW. Management agrees that reviewing the leveraging of PSW across its facilities can enhance efficiency and the use of IDA’s capital. In support of this effort, MIGA already provides a service to IDA’s financial counterparts by modeling loss reserves for each contract with MGF first-loss support, as outlined in the signed agreement. MIGA both provides the necessary information for the modeling exercise and performs it on behalf of IDA. This arrangement was established because IDA’s financial counterpart, responsible for other loan loss provisioning computations, relies on MIGA’s unique expertise and tools for calculating loss provisioning for Political Risk Insurance risks. MIGA is pleased to assist IDA with any additional analysis required to further enhance risk assessment.

Recommendation 2 is centered on the assessment and reporting of financial results to Bank Group management and the Board. MIGA recognizes the importance of financial management reports that specifically cover the PSW for providing a comprehensive perspective across the Bank Group. MIGA is fully committed to working closely across the Bank Group to improve collective reporting. MIGA already provides PSW-related financial data to IDA’s reporting of PSW activities under an agreed framework and stands ready to provide any additional information that may be necessary if any gaps are identified in the context of the proposed comprehensive reporting. Management will work across the three institutions on the reporting details and responsibilities for implementing this recommendation as part of the Management Action Record process.