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The World Bank Group’s Early Support to Addressing the Coronavirus (COVID-19): Economic Response (April 2020-June 2021)

Chapter 5 | Conclusions and Recommendations

The Bank Group developed an agile, strategic corporate response to address the economic implications of the COVID-19 crisis, which led to the institution’s largest-ever commitment to address a crisis. The crisis had a direct economic impact of approximately $7.4 trillion in 2020 alone. At $157 billion between April 2020 and June 2021 ($65 billion alone for the economic response), the Bank Group response to the COVID-19 crisis was the largest among the development partners and the largest in its crisis response history. The Bank Group’s response was made possible by senior management’s swift action at the inception of the crisis, the establishment of ad hoc decision-making committees to facilitate an agile response, the expansion of existing instruments (such as MPAs), and the deployment of new approaches, including a new IFC fast-track COVID-19 facility and new MIGA guarantee programs. The Bank Group’s response focused on the macrofiscal needs of client governments, the liquidity needs of banks and MSMEs, and support to trade finance, helping many client countries progress from the acute crisis phase to the incipient recovery phase (the second part of the evaluation period). One important concern, however, is that the pandemic has contributed to a rapid buildup of sovereign and corporate debt that has left highly indebted countries more economically vulnerable in the medium term. Recent IEG evaluations on public finance management and external debt assessments (World Bank 2021a, 2021b) offer important lessons in this regard.

The Bank Group’s early response was relevant to client governments and mostly relevant to client firms. It was relevant because it was geared toward countries that are highly vulnerable to economic shocks, especially LICs. However, support to sectors within countries varied, with some countries not getting sufficient support to sectors in need. The World Bank’s concentration on DPF and MPAs—primarily through the Equitable Growth, Finance, and Institutions Practice Group and the Social Protection and Jobs GP—was relevant to client governments, especially in the Africa and Latin America and the Caribbean Regions, although disbursements to IDA clients in the Africa and Middle East and North Africa Regions were relatively low. Prior actions supported both short-term reforms for economic and social recovery and longer-term regulatory reforms, including the green, resilient, and inclusive development agenda. The IFC and MIGA early response—especially through the IFC Financial Institutions Group—was mostly relevant to firms and in line with IFC’s expected countercyclical role. The relevance of the Bank Group’s support was limited by the lack of global knowledge work on the unique characteristics of the COVID-19 crisis. Country office staff needed greater clarity on crisis protocols to be better prepared.

The Bank Group’s early response was generally of good quality in design, was influential with clients, and was coordinated well with the IMF, although it had room for improvement in some areas. The Bank Group’s early response positively influenced client country strategies, especially regarding macrofiscal and social safety nets. The Bank Group’s influence on governments’ and firms’ actions in the incipient recovery phase (the second part of the evaluation period) was less on target based on the six-month period of incipient recovery evaluated. Recent IEG evaluations on sustainable development finance policy and public financial and debt management offer important lessons relevant to the recovery phase of the pandemic (World Bank 2021a, 2021b). We did not find evidence that the Bank Group learned consistently from developed countries or from its own experience (intracrisis learning) during the evaluation period. As a result, firms in high-contact industries that had been severely affected by the crisis and governments and firms that needed support for the incipient recovery phase were underserviced. The World Bank’s proactive engagement with the IMF improved the quality of the response to the crisis, but coordination with regional development banks and other international financial institutions was mixed. The Bank Group’s support to the financial sector and MSMEs was well coordinated, but Bank Group–structured finance solutions were limited. Because the Bank Group did not set targets related to the economic implications of COVID-19, we could not assess whether it is likely to monitor or meet them during the recovery phase. The Bank Group could have assessed whether existing compliance (including safeguards) requirements facilitated providing support during the crisis.

Six factors affected the quality of the Bank Group’s early response. They were (i) engaging with partners outside of the development community, (ii) mobilizing local partners and stakeholders, (iii) adopting clear staff surge plans for country offices, (iv) prioritizing staff welfare, (v) using instruments that can disburse quickly and at scale, and (vi) selecting and strengthening Project Implementation Units.

We offer two near-term recommendations to strengthen the role of the Bank Group as a crisis responder, which is more critical than ever. Global macroeconomic imbalances have reached unprecedented proportions. The situation is compounded by early warning signs of new crises emerging in client countries at the national level (for example, inflation), the regional level (for example, the Russian invasion of Ukraine), and the global level (for example, the food crisis). With this context of growing uncertainty at several levels, the role of the Bank Group as a systemic first responder to crises has become even more critical. We offer two recommendations for the Bank Group’s consideration to strengthen its role in addressing the economic implications of COVID-19 and future crises.

Recommendation 1: To effectively address future crises, codify a global crisis response playbook, ideally developed jointly with the IMF. A global crisis response playbook would include considerations on the effectiveness of various lending instruments at the time of crisis, examples of which instruments worked best under which country conditions and for which sectors and industries, and lessons learned on how to improve their use. The playbook would benefit from describing ways to identify and target countries in high need of support (for example, by developing need scores as conducted in this evaluation) and engage deliberately with highly indebted countries that may need debt resolution mechanisms during recovery from a global crisis. The playbook would include a list of partners, including from the private sector, with whom the Bank Group has successfully collaborated during COVID-19 and other crises. It would also include guidelines on applying safeguards in times of crisis, with a view to selecting only the essential ones, streamlining their application, and incorporating greater flexibility (for example, risk-based tiers and early results-based options) for staff and clients. Given that numerous crises are compounding around the world, it would be prudent for the Bank Group to prioritize staff welfare in planning for its future crisis responses. Staff surge planning has proved to be a driving factor of success during the COVID-19 crisis. Finally, the crisis playbook could include “crisis games” to be conducted regularly by Bank Group staff and clients based on risk assessments to improve preparedness and strengthen capacity for crisis response. Crisis games would be similar to the recent cybersecurity games conducted jointly by the Bank Group and the IMF with the support of the Boards of the two organizations. The playbook—or parts of it—could be developed jointly with the IMF. The effectiveness of joint Bank Group–IMF action in times of crisis could be further strengthened by an explicit joint statement of principles of collaboration between the two institutions to prevent, prepare for, and address crises.

Recommendation 2: To respond effectively during the recovery phase of the crisis, explore increasing use of structured finance solutions (such as partial credit guarantees, subordinated debt, and quasi-equity instruments) with a view to supporting small- and medium-size firms. The COVID-19 crisis has left many firms with potential debt overhang. Globally, a large number of small and medium firms were affected to the point of insolvency. The Bank Group’s structured finance solutions offer a relevant response during the incipient recovery phase of this crisis and potentially future crises. It is possible that such solutions would be complex to arrange and require the Bank Group to engage with several partners. However, the benefits are likely higher than the costs, and the trade-offs can be explored further. During the recovery phase of the crisis, it would be useful to explore the feasibility of increasing the use of solutions such as subordinated debt, quasi-equity instruments, partial risk, and partial credit guarantees to support recapitalizing firms. Some firms coming out of the recovery phase are likely to have limited growth potential because their capital structures were destroyed during the COVID-19 crisis. The Bank Group has the capacity to explore greater use of such options and develop related corporate risk analysis in real time during the crisis.