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

Report to the Board from the Committee on Development Effectiveness

The Committee on Development Effectiveness met to consider the Independent Evaluation Group (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 and the World Bank Group draft management response.

The committee welcomed the update to the 2021 early-stage assessment and highly appreciated IEG’s efforts to offer, in a timely manner, valuable findings and recommendations as well as insights and lessons relevant to the priorities of the World Bank Group Evolution and the new Playbook. These served as useful information for the Mid-Term Review discussions of the 20th Replenishment of the International Development Association (IDA20), ahead of the IDA21 Replenishment.

Some members noted the need to incorporate analysis of development impact in future evaluations of the Private Sector Window (PSW). Members concurred with the two IEG recommendations on better leveraging the International Development Association (IDA) PSW capital and enhancing financial reporting on the PSW across the Bank Group. They appreciated management’s agreement with the conclusions of the report and its commitment to implement the recommendations as One World Bank Group. The committee was pleased to note a significant increase in PSW use following the slow start in the IDA18 cycle, an early indication of the market creation impact from PSW investments, and an expansion of the PSW to new countries and sectors. They expressed concern that in PSW-eligible countries overall, the International Finance Corporation (IFC) average annual commitments were lower in the six years after the PSW launch than in the six years before the launch. There was also concern that, in several cases, clients pointed out that IFC prices were higher—despite the use of PSW—than those of its competitors. Members welcomed IEG’s finding that IFC and the Multilateral Investment Guarantee Agency follow the minimum concessionality principle, but some asked for clarifications on the methodology behind it.

Members stressed the need to leverage PSW capital more, allowing IDA, IFC, and Multilateral Investment Guarantee Agency to extend more support to PSW-eligible countries, including several low-income countries and small economies still uncovered. They highlighted the market creation potential of the instrument and its supporting role in mobilizing private sector engagement in countries. They called on management to scale up the use of IDA’s PSW to help create new markets, derisk projects, reduce first-mover costs, and incentivize investments in the riskiest markets, especially in situations of fragility, conflict, and violence. Management was also urged to improve both the analysis and risk methodology to optimize leveraging the IDA PSW capital allocation and to ensure that donor resources are being used as efficiently as possible to serve IDA clients. Members appreciated that some work on this has already been done and looked forward to further discussions with management on this area both during the IDA20 Mid-Term Review and future Board engagements. The committee encouraged management to actively address the underuse of nonfinancial additionality, focusing on incentives and collaboration within the Bank Group to help boost the delivery.

The committee inquired about the timeline for delivery of the second recommendation on financial reporting. Bank Group management explained that effective financial reporting will require deeper interagency collaboration and discussions across the Bank Group to ensure adequate implementation. As per established practice, management will include an update on this in the Management Action Record, which tracks implementation of recommendations.