The Committee on Development Effectiveness met to consider the Independent Evaluation Group (IEG) evaluation entitled The International Finance Corporation’s and Multilateral Investment Guarantee Agency’s Support for Private Investment in Fragile and Conflict-Affected Situations, Fiscal Years 2010–21: An Independent Evaluation and the draft management response.

The committee welcomed the evaluation, noting its relevance and timeliness to inform the upcoming discussions of the 20th Replenishment of IDA (International Development Association) and the implementation of the fragility, conflict, and violence strategy. Members stressed the relevant role that the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) play in achieving the twin goals and the Sustainable Development Goals (SDGs) by increasing support for private sector development (PSD) and private investment in fragile and conflict-affected situations (FCS). Members were pleased to learn that IFC and MIGA have been able to maintain the relative share of their business volumes in a context of declining foreign direct investment flows to FCS countries; have gradually deployed new approaches and instruments in FCS; and are moving in the right direction for scaling up and meeting their goals in FCS. Nonetheless, members recognized that further improvement is needed to achieve the FCS targets committed to under the capital increase package and appreciated the report’s findings and recommendations to improve results and scale up private sector interventions in FCS countries.

While some members noted their agreement with the report’s recommendation that IFC’s and MIGA’s risk management frameworks and capacities should be fully operational and continuously adapted to changing circumstances and operations (recommendation 1), some asked for clarification on whether changes in the risk framework would affect IFC’s and MIGA’s risk appetite and IFC’s credit rating. They recognized that investing or providing investment guarantees in high-risk countries involves trade-offs with IFC’s and MIGA’s overall risks and financial results and that there was a need for the Board of Executive Directors to have more candid conversations on risk-taking, including on the range of nonfinancial risks that can be particularly acute in FCS contexts. They also asked management to comment on the robustness of their risk management frameworks to increased fragility in countries where IFC and MIGA are pursuing investments and guarantees or have already secured commitments.

Members noted management’s clarifications that developing a more intentional and measurable approach to developing bankable projects in FCS was at the heart of IFC 3.0 strategy and MIGA’s Strategy and Business Outlook: FY21–23 (recommendation 2). While acknowledging the array of approaches and initiatives already developed by IFC and MIGA, members highlighted the need to sustain focus on World Bank Group upstream engagement, indicating that recalibration of their business models, client engagements, and instruments as IFC and MIGA expand their work in FCS countries should be seen as “business as usual.” Members called for stronger collaboration among the Bank Group institutions to address regulatory constraints and for the development of more intentional and measurable approaches to developing bankable projects in FCS.

Members recognized the operational challenges cited by IFC and MIGA regarding the recommendation to identify and agree to FCS-specific targets in IFC and MIGA corporate scorecards to focus their efforts and track progress in implementing the Bank Group fragility, conflict, and violence strategy for the private sector (recommendation 3). However, many members saw value added in pursuing the evaluation’s recommended approach and asked management to reflect on maintaining the existing targets internally while setting additional FCS-specific targets to help target progress. Members acknowledged the explanation by IFC that many countries that graduate from the World Bank FCS list remain fragile and classified as low-income countries in the years following graduation, and it was therefore crucial to continue supporting them. They noted the proposal by IFC to continue using current metrics and to conduct ex post assessments and IEG’s clarification that its recommendation was to add FCS-specific targets to complement, not replace, existing key performance indicators agreed to in the context of the capital increase package. Members encouraged IEG, IFC, and MIGA to continue conversations regarding adopting a wider set of metrics.

Members appreciated IFC management’s confirmation that it has taken important organizational, managerial, and business decisions to meet its 2030 capital increase targets and to scale up its business in FCS. Noting the relevance of the recommendations, the committee acknowledges the divergent views of IFC, MIGA, and IEG in regard to the recommendations and, therefore, encouraged IEG, IFC, and MIGA management to take into consideration the committee’s views and work together to find common ground on the way forward, including how to interpret, operationalize, and track the recommendations.