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World Bank Support for Public Financial and Debt Management in IDA-Eligible Countries

Report to the Board from the Committee on Development Effectiveness

The Committee on Development Effectiveness met to consider the report, World Bank Support for Public Financial and Debt Management in IDA-Eligible Countries, and the World Bank management response.

The committee welcomed the evaluation. Members deemed it a timely report, highlighting the relevance of public financial management and debt sustainability challenges for all client countries in light of the impact of the coronavirus (COVID-19) crisis on fiscal reprioritization and levels of debt. They noted the relevance of the evaluation’s findings and recommendations for the upcoming 20th Replenishment of the International Development Association (IDA) negotiations and highlighted the importance of monitoring and assessing public financial management (PFM) trust funded activity. Members noted that the report found that the World Bank had invested significant resources in strengthening public financial and debt management (PFDM) capacity for IDA-eligible clients, yielding many positive—albeit limited—results. Members also noted the shortcomings mentioned in the report with respect to public investment management, coordination, and sequencing. Members appreciated management’s agreement with the evaluation’s recommendations to regularly monitor the quality of the key pillars of the PFDM and actively use the assessment to prioritize and sequence World Bank support for PFDM capacity building and policy reform in IDA-eligible countries, including in the context of performance and policy actions under the new Sustainable Development Finance Policy (SDFP). Members appreciated the clarifications about the World Bank’s current commitments being aligned with the findings and overall direction of the evaluation, while highlighting that further streamlining is required. Members acknowledged management’s explanations on the recent World Bank initiatives launched to further enhance debt management in IDA countries through a broad-based commitment to a multipronged strategy, such as the SDFP and the Debt Service Suspension Initiative. Management also clarified that the quality of the key PFM and public debt management (PDM) pillars were being regularly monitored. While acknowledging the importance of PFM and PDM, management emphasized that sound fiscal policy choices on expenditures, revenue, and deficits are the key drivers for debt sustainability.

Several members asked for clarifications on the institutional and operational links between PFM and PDM. Others encouraged management to improve synchronization and coordination efforts both with client countries and within the World Bank’s operations. Members suggested that in the implementation of the SDFP greater attention could be paid to public investment management, aligning incentives across the PFDM spectrum, stressing the focus on debt transparency and debt and fiscal monitoring, or ensuring support to the countries mos tin need of fiscal and debt monitoring management.

Members and nonmembers called for an engagement with the Board of Executive Directors on debt sustainability to provide a holistic view of the World Bank approach to PFDM, collaboration with the International Monetary Fund to address client countries’ debt risk, and the initiatives to improve links between debt and the Sustainable Development Goals. Appreciative of the detailed introductory remarks by management, some members suggested that the management response could be enhanced with some additional information such as that provided during the meeting.