Management of the World Bank Group institutions would like to thank the Independent Evaluation Group (IEG) for its report, World Bank Group Approaches to Mobilize Private Capital for Development. This evaluation faced the challenging task of examining one of two main aspects of the Bank Group’s efforts to support and facilitate the mobilization of private capital—a core principle of the Bank Group’s Maximizing Finance for Development (MFD) strategy. Management is keen to receive IEG’s complementary FY23 evaluation on the Bank Group’s activities supporting the catalyzation of private capital. That evaluation is anticipated to provide insight on the World Bank activities that support private capital mobilization but are not covered in the current evaluation.

World Bank Management Response

Management appreciates that the report affirms the relevance of the Bank Group’s private capital mobilization approach. The report concludes that the private capital mobilization (PCM) approach is (i) relevant to both country and corporate clients; (ii) mostly effective in mobilizing private capital, with potential existing even in low-income and lower-middle income countries; and (iii) partially meets investors priorities and expectations. The report also notes that the PCM approach is appropriate as part of the response to the coronavirus (COVID-19) crisis, which requires mobilizing both public and institutional investor capital in the short and medium term. All this is possible because the Bank Group institutions have been working in close alliance, especially after the comprehensive preparation under the Country Partnership Framework reform. The World Bank’s official corporate target for PCM is the commitment to its Board of Executive Directors to a target of 25 percent for the International Bank for Reconstruction and Development (IBRD), on average, over the period FY19–30, as part of the IBRD capital package. The target of 25 percent on average recognizes the significant year-to-year fluctuation in private capital mobilized.

The Bank Group has been effective in coordinating with other development partners in advancing the PCM agenda toward the achievement of the Sustainable Development Goals (SDGs). IEG notes that “to achieve the SDGs by 2030, development institutions will need to leverage an unprecedented amount of private sector capital.” In 2016 the Bank Group, along with the other multilateral development banks (MDBs), issued a joint statement to mobilize increased investment from the private sector and institutional investors; in 2017, the finance ministers of the Group of 20 approved a set of principles that give the Bank Group and other MDBs a framework for increasing private investment to support countries’ development objectives; and in 2017, the Bank Group introduced the MFD approach to systematically leverage all sources of finance, expertise, and solutions to support developing countries’ sustainable growth (World Bank Group 2017). The PCM projects have already contributed to several SDGs, including “greater financial inclusion and greater access to infrastructure—affordable and clean energy for firms and households,” with management recognizing that more can be done to benefit the social sectors.

Definitional issues in the report may inadvertently confuse the interpretation of the types of activities undertaken by Bank Group institutions to support PCM. In adopting the Hamburg Principles in 2016, the Group of 20 nations welcomed the role of the MDBs in mobilizing and catalyzing private capital. MDBs have harmonized on the definition of PCM, which includes both direct and indirect capital mobilization. However, the full range of World Bank lending and analytical engagement that help create and strengthen the enabling environment to support PCM efforts are not captured under the framework applied in this report. In this context, it would be more accurate to describe the report’s conceptual framework as being focused on “private direct and indirect mobilization” rather than characterizing it as a comprehensive framework for “mobilization of private capital.” The report’s goal of assessing the relevance and effectiveness of the Bank Group’s efforts, to mobilize private capital for development and to identify factors driving results, was therefore not entirely achieved given the limited sample (in both scale and scope) of World Bank projects considered in the report. Management notes IEG’s plan to complement the findings of this report with an evaluation on the World Bank’s role in “catalyzation,” which will include extensive World Bank activities not considered in the current report. However, the follow up evaluation will not be delivered until FY23, which creates an unfortunate time lag between these two complementary reports and may lead to spurious conclusions and limited understanding of Bank Group’s comprehensive role in supporting the mobilization of private capital.

An analysis or interpretation based on limited data should include proper caveat that it is not representative, thereby limiting the possibility of spurious conclusions. As noted, the report’s scope is limited to the Bank Group’s direct and indirect PCM approaches. With respect to the World Bank, it therefore focuses only on activities directly supporting private capital mobilization—which is less than 1 percent of the total Bank Group portfolio over the 12-year review period. Defining the World Bank’s portfolio for private indirect mobilization (PIM) is particularly challenging because World Bank Operational Systems did not capture this information prior to 2016. Moreover, the reliance on interviews and dated evaluations for the World Bank’s PIM projects may not provide conclusive evidence (thereby further compromising an already small sample). Management believes that this limitation and narrow scope is not sufficiently flagged up front and elaborated within the report. Similarly, the report states that World Bank projects with PCM achieved higher outcome success rates than those without PCM (83 percent compared with 76 percent). Given the small and nonrepresentative sample of World Bank PCM projects (12 with IEG-validated outcome ratings), the average outcome rating could change significantly through the rating of a few additional projects. Therefore, extrapolating results and success rates to the entire PCM portfolio could be misleading.

Recommendations

Recommendation 1: To meet the 2030 PCM targets, prioritize client countries for PCM approaches, with corresponding targets cascading to the Regional units and Global Practices (GPs; for IBRD).

Both the PCM target stated in the IBRD capital increase and the World Bank’s commitment to the MFD approach have been inculcated in the Regions and Practice Groups, and Country Partnership Frameworks are being used to discuss opportunities for private sector involvement and MFD. To strengthen staff incentives, we recognize the need to continue improving the tracking system for PIM and to recognize private capital and other funds mobilized along with IBRD and International Development Association (IDA) resources. For example, the Infrastructure Finance, Public-Private Partnerships (PPP), and Guarantees GP has started to track and report on “MFD-enabling” projects from fiscal year (FY)18 onward. That said, it is neither practical nor advisable to cascade down the corporate target for PCM to the Regions and the GPs, due to the nature of PCM described above.

Recommendation 2: Expand PCM platforms, guarantees, and disaster risk management products commensurate with project pipeline development (Bank Group).

Management agrees that it may be beneficial to consider possible enhancements to the PCM platforms.1 Several efforts have already been made in response to COVID-19, but more medium-term and sustainable options should be considered. One such example comes from the disaster risk management product. The Bank Group has learned that, after a disaster, quick access to predictable financing is critical for emergency response, as even small delays cost lives and livelihoods. This is how the World Bank’s development policy financing with catastrophic deferred drawdown option (Cat DDO) instrument came into being. In FY20, the Cat DDO was triggered in eight countries, providing over $1.2 billion in immediate financing for countries responding to COVID-19. The other example comes from PPP arrangements. To provide governments with strategic short-term advice on the impacts of the pandemic, the Public-Private Infrastructure Advisory Facility collaborated with the World Bank’s Infrastructure Finance, PPP, and Guarantees Group to establish a rapid response program. Phase 1 has already been deployed. Through this program, national PPP units, ministries of finance, sector ministries, and utilities can request short interventions of remote, targeted technical advice to undertake a fast assessment of the impact of COVID-19 on their PPP programs.

International Finance Corporation Management Response

Since the launch of what is now known as the B Loan program in 1959, fostering and enabling third-party investment, alongside funding from the International Finance Corporation (IFC), has been a key part of IFC’s investment approach. IFC’s Articles of Agreement call for the institution to “seek to stimulate, and to help create conditions conducive to, the flow of private capital, domestic and foreign, into productive investment in member countries.” Along with creating markets, mobilizing finance is a critical element of IFC 3.0, including in its explicit undertakings to the Board as part of the capital increase. IFC welcomes this thematic evaluation and appreciates IEG’s findings that IFC has delivered results in line with expectations and that its products have found relevance with investors and delivered benefits to clients.

Mobilization is at the core of IFC’s mission and all its activities focus on fostering private sector investment. However, mobilization can be broadly construed, with activities ranging from policy reform, which facilitates investment flows, to actively securing finance to support an individual project. The report takes a very high-level view of mobilization, reflecting a country outcomes lens. However, IFC targets countries based on its comprehensive country strategies, which shape how IFC originates projects for its own account through upstream and business development efforts. IFC’s deal origination efforts in turn lead to and attract mobilization, and IFC’s mobilization is delivered through a project-based approach informed by country strategies but responsive to specific project, investor and mobilization product requirements. Although a country lens approach to mobilization might focus on interventions to facilitate portfolio flows in publicly traded, standardized instruments that fit best with mainstream institutional investor needs, IFC’s “core mobilization” approach, which is the focus of IEG’s evaluation of IFC activity, is entirely a project lens construct requiring IFC to find ways in which investors can be brought into customized, private credit and equity transactions designed to achieve specific development outcomes. The two approaches, though not mutually exclusive, are very different and this distinction matters in terms of product design, investor selection, and overall mobilization strategy.

Definitional precision is therefore crucial in allowing for a meaningful comparison of different activities across different Bank Group entities. IFC management therefore wishes to clarify the exact nature of IFC’s core mobilization. The harmonized MDB Guidelines on mobilization, established in 2016, clearly distinguishes between indirect mobilization (where there is coparticipation of private investors in Bank Group–financed transactions) from direct mobilization, where third-party investment is deployed into Bank Group–financed projects as a consequence of an active and direct effort by an MDB. The sum of indirect and direct mobilization is recognized as total PCM. Because indirect mobilization may be said to occur in every IFC project (for example, equity provided by a sponsor), IFC has developed strict procedures and policies for recognizing only third-party finance (from both public and private sources) that was specifically sourced and structured on commercial terms through an active and direct effort on the part of IFC as core mobilization. To that end, core mobilization is not, as suggested by IEG, IFC’s measure of private capital mobilized; instead, core mobilization is a specific and clearly bounded measure of direct mobilization—a subset of all private capital mobilized. In conflating core mobilization and private capital mobilized, IEG is underrepresenting IFC’s total mobilization activity. In 2019, IFC reported $19.5 billion in total private capital mobilized, comprising $9.1 billion in private direct mobilization and $10.4 billion in PIM. In FY20, IFC reported $10.8 billion in core mobilization. IFC management believes that definitional precision is important not only to ensure appropriate representation of the quantum and nature of IFC’s activities but also to allow for an evaluation of IFC’s activities within their specific context: in the case of IFC, as an evaluation of core mobilization, a focus specifically on IFC’s ability to generate coinvestments from specific types of investors in specific types of financing directly to individual IFC-originated projects.

To that end, IFC management acknowledges IEG’s conclusion that mobilization platforms are in place to channel third-party mobilization and that the successful deployment of that mobilization capacity is only ever a function of the pipeline that IFC generates. IFC management also acknowledges IEG’s conclusion that appropriate staff resourcing is an essential condition for mobilization. IFC would highlight that financial structuring skills predominate at IFC and would further note that it has created focused resources to specifically support its major mobilization activities—syndications, Asset Management Company (AMC), PPP, trade finance—reflecting the recognition of the need to resource “active and direct” mobilization. It also reflects a commitment to continue to innovate and develop products to support additional investor participation and, as noted in the report, to maintain its market leadership.

However, IFC management believes that recommendations regarding product development and investor engagement would have been more instructive if set in a demand-driven context, including specific consideration of the nature of the investor and the context of the asset class. The report notes that there is a disconnect between some IFC mobilization products and the investment strategies of certain large investors and thus recommends the development of products that cater to an investors existing investment strategies and asset allocation preferences. Given that a link with an IFC project is a necessary condition of core mobilization, taking IEG’s recommendation to the extreme would thus suggest a significant change in IFC’s investment strategy. IFC would instead suggest that the real challenge is therefore to develop mobilization products and platforms that conform to the regulatory and institutional requirements of different types of investors (not just institutional capital) but that are designed to specifically enable investors to channel financing to the types of projects financed by IFC in the markets in which IFC is strategically focused. Such a process would not lend itself automatically to simplified products. In fact, IFC’s experience suggests the opposite: that crowding new investors into new asset classes in markets that are aligned with IFC’s strategy is a complex undertaking, requiring proactive engagement with a wide range of partners, as well as long-term research and development. Further, IFC would note that even when the asset class or mobilization product is already familiar, IFC plays a crucial role in proactively channeling capital to more challenging and complex markets and sectors. Proactive engagement is required to help investors, who have different risk appetites, gain comfort in these markets. Whether recently through the AMC, Green Cornerstone Bond Fund (GCBF), or Managed Co-lending Portfolio Program (MCPP) or six decades ago starting with the B Loan, IFC has demonstrated its ability to customize products and pioneer platforms that meet the needs of different types of investors and to create the conditions necessary for actually delivering capital from new investors to its clients at scale in the markets that align with IFC’s strategic priorities.

IFC management notes that IFC’s mobilization products exist within material and sophisticated financial ecosystems with different operating regulations, investment expectations, and surrounding financial infrastructure. However, a granular review of specific asset classes and products is absent from IEG’s analysis, which mainly provides generalized findings and aggregated representations. Further, the basis of some of these findings is not always clear and the report appears to be open to significant subjective judgment with primary sources limited only to an internal data set that is relatively narrowly drawn and a series of interviews with a small number of market counterparts. The report takes a supply-driven approach to product development, project origination, and country strategy fulfillment efforts without considering market demand, exploring the external landscape of products and investors, or providing context to specific capital flows by mobilization product. Disaggregating by product, asset class, and type of investor would allow for a more meaningful evaluation of IFC’s performance, given the specific product operating environments and the relative overall level of flows in that product to the markets in which IFC is active.

IFC management would therefore like to highlight several observations related to its debt mobilization activities.

• Institutional investors: Notwithstanding the fact that IFC works with commercial banks, insurance companies, and institutional investors to mobilize debt funding for IFC loan projects, the report’s recommendations appear to focus significantly on potential opportunities with institutional investors. The rationale for focusing exclusively on this specific and limited subset of investors is not clearly articulated or explained. While scaling engagement with institutional investors may hold some promise for expanding debt mobilization by IFC and its development finance institution peers, the banking markets continue to provide a significant source of mobilization for development finance institution–originated loan projects. Further, data on investment flows would suggest that capital flows from institutional investors into emerging market loans is currently negligible in the context of their overall holdings. In assessing the performance of and potential for IFC to mobilize from institutional investors for emerging market loans, the report could therefore have framed IFC’s activities against the context of overall capital flows from that type of investor into that type of asset. Given the nascent state of institutional investor participation in emerging market loans, IFC is therefore disappointed that IEG did not acknowledge the pioneering nature of this mobilization product, which has to date raised $10 billion.
• Insurance companies: In assessing alternative sources of mobilization beyond the bank markets, IFC is disappointed that the evaluation did not review IFC’s engagement with the nonpayment insurance market, a fast-growing source of mobilization capacity. Since 2013, IFC has been actively working with private sector insurers to mobilize unfunded risk participations, supporting IFC’s ability to increase long-term lending; this is an area IFC has scaled materially in the last few years. It is with this background that IEG’s conclusion that “several detailed requirements that need to be filled before such complex investment opportunities, such as unfunded risk participation with MCPP, can be considered” seems to run contrary to demonstrable mobilization activity. IFC now works with 13 different private sector insurers using a range of different products. IFC is already operating two unfunded MCPP facilities with $1.5 billion of capacity from three insurers and, in June 2020, launched a third facility with 6 insurers for an additional $2 billion.
• B Loans: IFC acknowledges IEG’s findings that the B Loan has been relevant and that IFC debt mobilization activities have met client needs. However, the report also incorrectly conveys some fundamental misunderstandings about the B Loan program and IFC syndications activities. First, by its nature, the B Loan operates to facilitate cross-border and foreign direct investment (FDI). Although IFC undertakes other mobilization activities that clearly leverage domestic capital and financial markets (for example, through local currency mobilization), the B Loan is not structured as a primary platform for local investment. IFC mobilizes local investors frequently and with great success, but B Loans are not intended to serve this purpose. Secondly, IFC would note that by design its syndication strategies at the individual project level focus on most efficiently delivering to clients their required level of debt financing, which may include cross-border syndicated lending, domestic bank finance or capital market activities. IFC does not specifically consider its role in deepening the syndicated loan market per se and it is not altogether clear why any demonstration effects should be bounded by a specific investment approach. IFC’s mobilization activities create demonstration by supporting first-time investors in new markets or by widening the lender groups for emerging market borrowers. This is particularly true in the context of introducing banks, which may be already familiar with our syndication products, to projects in new markets particularly increasing mobilization in IDA countries or fragile and conflict-affected situations (FCS). IFC would however be receptive to engaging to better understand IEG’s analysis, evaluate the options, and consider how further targeting the development of syndicated loan markets might support country-level outcomes in the context of broader efforts to mobilize private sector capital. However, at this stage, having been unable to review the complete data set, IFC has some reservations about the quality and availability of data, as well as the methodological approach and underlying assumptions.
• MCPP: IFC welcomes IEG’s findings on the relevance and effectiveness of the MCPP-SAFE (State Administration for Foreign Exchange) program with respect to both investor satisfaction and client outcomes. However, the report appears to fundamentally confuse certain aspects of IFC’s MCPP debt mobilization platform. The MCPP’s portfolio syndication process, as described and evaluated for MCPP-SAFE in the report, is consistent across all MCPP facilities. Under this process, MCPP participants agree in advance on borrower eligibility criteria and commit an envelope of capital to IFC. IFC then deploys this capital automatically over time alongside its own commitments to borrowers that meet the criteria—without further review or approval by the participants. Although every MCPP facility follows the same standardized process, each facility uses one of three unique legal and operating structures to deliver participants’ capital to borrowers, based on the specific requirements of three different investor types: one each for sovereign wealth funds, institutional investors, and insurance companies. In only one of the three MCPP structures (MCPP Infrastructure) does IFC also make an investment directly into the structure. In questioning the adequacy of the overall return profile of the MCPP, the report therefore appears to incorrectly conflate the entire MCPP platform with this single structure that also includes an IFC investment. Furthermore, the conclusion itself appears to infer a threshold condition that was never envisaged in the design of these particular projects. IFC investment was explicitly designed and structured with a return expectation below hurdle (but with some blended finance support from the Swedish government) to enable the participating private institutional investors to meet their regulatory constraints, as well as to incentivize these investors to commit capital at scale to this developmentally crucial asset class. These return expectations were disclosed to the Board upfront, and the projects were approved on this basis. Such an approach does not seem inconsistent with the recommendations suggested elsewhere in the report to customize mobilization products to meet investor requirements or with other examples cited by IEG. However, IFC management acknowledges that designing any additional first-loss structures will require a rebalancing of the risk-return profile between IFC and institutional investors, and it will review lessons learned from this initial program before contemplating further efforts in this vein.
• GCBF: The report appears to also question the scalability of the GCBF structure that IFC established together with Amundi. Market evidence suggests that the structure is replicable and a number of private sector partners have already launched similar products. Further, the structure was specifically designed to reflect the regulatory requirements of institutional capital and the underlying assets are tradeable securities, which is entirely consistent with the primary debt asset allocation of institutional investors. To that end, IFC management would be interested to understand what further requirements IEG believe should be considered to support additional scaling of this asset class.

With respect to the sections of the IEG report referring to AMC, IFC Management wishes to note that AMC’s business model has been validated in the context of market demand, mobilizing $8 billion of capital from 55 high-caliber institutional investors. Further, IFC Management has reservations about the IEG approach and as such, the conclusions presented in the report.

• IEG approach (recycling without updates): AMC-related references in this report are derived from a previous evaluation that took place in 2018. IFC Management has already commented on the 2018 IEG evaluation and has extensive reservations about the findings, and the comments provided at that time are still relevant in the context of this report. To that end, it would have been more productive if the references from the old report were not merely repeated in the new report. Further, IFC’s Management is disappointed that given the significant developments since 2018, the report fails to provide an updated context to AMC’s activities.
• IEG approach (unreasonable generalization): IFC would also note that the 2018 evaluation was a meso evaluation, a lighter, shorter evaluation approach that was conducted as part of a pilot process. This evaluation did not cover AMC as a whole, but rather only reviewed a subset of AMC’s activities through a study of 5 selected AMC Funds. The findings were therefore specific to the context of those funds and IFC has concerns that this evaluation misrepresents these specific fund level findings as general conclusions on AMC and IFC’s equity mobilization platform. IFC Management would highlight that IEG’s assessment of the development impact of AMC’s funds is limited and incomplete in this regard being drawn solely from a review of 5 out of 13 funds that AMC manages. The report does not assess, nor does it even mention the remaining 8 funds in AMC’s portfolio whose development impact has not been evaluated by IEG to date. To the best of IFC Management’s knowledge, the majority of the remaining funds have met or are currently meeting their objectives. IFC Management believes that an assessment of AMC’s full development impact can only be drawn from a comprehensive analysis of all AMC funds, and short of such an analysis, any conclusions are premature.

Multilateral Investment Guarantee Agency Management Response

Multilateral Investment Guarantee Agency (MIGA) contributions to PCM. MIGA welcomes the IEG evaluation on the Bank Group approaches to mobilize private capital for development (FY07–18) and finds it useful and important. MIGA notes the report as timely, since the “Billions to Trillions” challenge—using the (few) billions of ODA (official development assistance) dollars to raise trillions of private capital—is fundamental to achieving the 2030 global development agenda on SDGs. MIGA agrees broadly with the report’s findings that all MIGA activities through its political risk insurance (PRI) and nonhonoring of financial obligations guarantee instruments directly mobilize private capital. Further, MIGA’s reinsurance activities through treaty and facultative reinsurance, enhance the MIGA’s capacity for PCM. MIGA notes that reinsurance is not, strictly speaking, PCM, as per the agreed MDB methodology, which does not include reinsurance as either private direct mobilization or PIM. Even so, MIGA agrees with the report’s view that reinsurance does bring private sector participation into emerging markets and developing economies and that MIGA’s reinsurance program is instrumental in doing so.

Country conditions and PCM. The report finds that equity guarantees are used most in MIGA projects, with more guarantees provided in countries with weak scores for ease of doing business, protecting minority investor rights, and regulatory quality. MIGA agrees with these findings and notes that this as a broad validation of the Agency’s strategic priorities, particularly because it is IDA and FCS countries that have the weakest scores for ease of doing business, protecting minority investor rights, and regulatory quality. These findings are also consistent with the MIGA mandate for facilitating foreign investments into developing countries by providing PRI and nonhonoring guarantees to private sector investors and lenders against noncommercial risks. In particular, the PRI product caters to equity investors as they bring FDI into developing countries that has the potential to contribute to economic growth and poverty reduction. The report’s findings related to equity as the most-guaranteed investment type also illustrate well the continuing importance of the PRI product. MIGA also notes that based on recent IEG data, MIGA’s development outcome success rates (FY13–18) in IDA and FCS countries, at 77 percent and 78 percent, respectively, are higher than the MIGA-wide development outcome success rate of 69 percent.

MIGA also notes that the report’s findings regarding the importance of MIGA guarantee support for PCM in weak regulatory quality environments is consistent with the findings of the FY14 IEG evaluation of the Bank Group support for PPPs. The PPP evaluation found that MIGA guarantees increased investors’ confidence and effectively supported the implementation of PPPs in those countries that were developing their PPP frameworks. MIGA guarantees helped increase investors’ confidence and improve their capacity to raise capital, lower their financing costs, and mediate disputes with governments. The PPP evaluation concluded that strengthening MIGA’s role in Bank Group–wide efforts to foster PPP frameworks would enhance the potential for bringing PPPs to more nascent and emerging countries.

MIGA’s influence on public sector clients. The report states that MIGA’s influence on public sector clients is limited to environmental and social compliance and practices. The report refers to the IEG evaluation on MIGA’s nonhonoring guarantees in noting that, other than the support for better environmental and social sustainability practices, there was no evidence that MIGA’s nonhonoring insurance has encouraged public sector clients to adopt increased transparency and disclosure, good corporate governance practices, antimoney laundering, anticorruption, or antifraud practices. However, MIGA notes from project evaluations validated by IEG that there is evidence that MIGA has contributed to improved corporate governance, more innovation, and increased knowledge transfer. MIGA also notes that the Agency promotes transparency and disclosure through the “Summary of Proposed Guarantee” published on MIGA’s external website (www.miga.org) prior to projects being considered by the Board. This sends a strong signal to the market and stakeholders with respect to transparency, which would not otherwise be available without MIGA’s involvement. In addition, MIGA achieves oversight relating to anti-money laundering, anticorruption, and fraudulent practices through the Agency’s integrity due diligence work on guarantee holders and project enterprises, including integrity action plans and compliance reports in appropriate cases.

Challenges to MIGA guarantees. The report states that the common challenges to MIGA guarantees revolve around MIGA’s comparative position and considerations about external debt and fiscal sustainability. With regard to the latter concern, MIGA notes the following: (i) the extensive debt sustainability work undertaken in nonhonoring guarantee projects for assessing the ability of the beneficiary of the MIGA-guaranteed loan to service its existing debt and the additional debt envisaged in the project; (ii) MIGA only provides nonhonoring cover to countries with strong credit ratings, thereby mitigating ex ante providing the product to countries that are not in a strong position to service additional external debt; (iii) ex post information on debt servicing requirements is typically incorporated in countries’ projected debt service forecasts and as such is an indicator that MIGA monitors carefully in its quarterly review of a country’s nonhonoring credit rating; (iv) MIGA has internal limits on the dollar value of nonhonoring exposure it can provide to a single country, and these amounts are typically very small compared with a country’s gross domestic product, thereby significantly limiting MIGA’s potential contribution to a country’s debt servicing obligations and hence potential to risk jeopardizing a country’s external debt or fiscal sustainability. Moreover, under the Bank Group Cascade approach, task teams are consistently testing—and advising countries on—whether a project is best delivered through sustainable private sector solutions (private finance or private delivery), and if not, whether Bank Group support for an improved investment environment or risk mitigation measure, such as a MIGA guarantee, could help achieve such solutions.

Cascade approach and PCM. The report finds that concomitant World Bank, IFC, and MIGA interventions—including by applying the Cascade framework—have a positive effect on PCM outcomes, based on evidence from energy sector projects. The Bank Group joint interventions ranged from working sequentially as a project’s derisking needs evolve to financing needs or working concurrently as One Bank Group on upstream issues. As noted in the report, the Bank Group will adopt a systematic organization-wide approach to creating markets by linking policy reform, advisory, investment, and mobilization to deliver solutions packages using the Cascade approach as the operating system for MFD. The report also finds that a “bigger and better” Bank Group will also support growth of MIGA mobilization products, since the Agency supports and relies on IBRD and IFC for their work on upstream reforms that support private sector investments.

MIGA notes that these findings also provide a useful illustration of the Bank Group’s vision as an integrated solutions provider for client countries, envisaged under the 2013 Bank Group strategy, which is important from a PCM standpoint as well. The energy sector projects highlighted in the report illustrate well the unique roles of the three Bank Group (IBRD/IDA, IFC, MIGA) institutions in the energy sector. The Bank Group has the capacity to provide development solutions along the entire delivery chain to client countries, from upstream support for the enabling environment to downstream transactions and execution, including PCM.

MIGA notes that these findings are also consistent with those of the IEG’s FY15 electricity access evaluation, which identified MIGA’s value added in joint Bank Group projects in the electricity sector as (i) providing long-term PRI for high-risk countries not available from international commercial insurers, (ii) enhancing credit worthiness of projects, and (iii) mobilizing additional capital. Overall, MIGA provides long-term PRI for high-risk projects and countries, which is not available from international commercial insurers.

Recommendation

Recommendation 3: Develop new products and improve product alignment with the needs of new investor groups and partners (IFC and MIGA).

The report states the following: “Continue to innovate instruments. Global and regional clients also seek innovative instruments to, for example, better support local currency financing through pooled currency facilities. Certain innovative approaches require projects to engage with credit rating agencies. Green financing and new instruments addressing climate change require working with international consortia, research and rating agencies, and data providers. There is market demand for political risk guarantee solutions that offer comprehensive coverage or support collective investment vehicles targeting lower-middle-income and low-income countries. Such opportunities can be translated into innovative new MIGA products. Pilot approaches using innovative instruments and better investor alignment can help scale up PCM and improve outcomes.”

MIGA agrees broadly with the recommendation. MIGA recognizes that to deliver on PCM, and more broadly its FY21–23 Strategy focused on IDA or FCS and climate finance, the Agency will need to increase its innovation and new product applications. The market for supporting FDI is limited; FDI itself is flat or shrinking; and MIGA already has a significant share of its addressable market, especially in its core priority areas. The Agency is already exploring opportunities for six product application innovations, although these will progress at different speeds, especially in a post–COVID-19 context, and not all may be ultimately scalable for impact. MIGA is already developing product application innovations in the areas of capital markets, local currency, trade finance, and support for local investors. To help foster innovative approaches, as well as to continue to grow its existing PRI and nonhonoring product opportunities, MIGA will closely and systematically collaborate with the World Bank and IFC, including to leverage their expanded upstream work, which is expected to generate more investable transactions. In addition, MIGA will strengthen its partnerships and collaboration with other MDBs, as well as export credit agencies, to offer more complementary and comprehensive products and solutions.