The COVID-19 pandemic caused a global economic crisis. Since March 2020, COVID-19 has put all aspects of economic and social life under immense strain. The spreading pandemic led to mandatory business closures, limitations on contact, and travel bans that contributed to a massive disruption of global economic activities. Unlike past crises (for example, the global financial crisis of 2008), the COVID-19 economic crisis did not affect just one sector; simultaneous supply and demand shocks affected numerous sectors and countries in quick succession.
The economic crisis caused by COVID-19 threatens the achievement of global development priorities and has caused a massive debt buildup. In 2020 alone, the pandemic caused direct economic losses of approximately $7.4 trillion. The COVID-19 crisis has accelerated the pace of borrowing globally, especially in highly indebted countries. At more than 65 percent of gross domestic product, government debt in emerging markets is now 25 percentage points higher than in 2010 and continues to increase. Large budgetary reallocations to finance urgent expenses in health and essential services were inevitable but have threatened growth, reversed gains in poverty reduction, and put the achievement of all Sustainable Development Goals at risk.
The economic effects of the COVID-19 pandemic materialized through multiple transmission channels. Governments aimed to contain the pandemic with lockdowns, which prevented firms from operating and interrupted trade. Household income and investments fell as workers lost their jobs or had their hours cut. Credit risk increased significantly in March–May 2020 (IMF 2020a), sometimes translating to nonperforming loans and increased liabilities for governments. Drops in government revenues and increases in government spending led to increasing sovereign debt.
The World Bank Group applied its full capacity to mitigate the economic impacts of the pandemic. It targeted governments, financial institutions, and firms. The Bank Group supported governments’ and firms’ responses to the crisis through several instruments, including analytical and advisory activities, lending, emergency liquidity, and direct support to firms. Bank Group support was aimed at “keeping the lights on” and trade flowing for micro, small, and medium enterprises (MSMEs), preserving jobs for households, enhancing the liquidity and capital positions of financial institutions, and supplementing government budgets for crisis spending. We expect that the final outcomes will be reducing firm and household bankruptcies and preventing banking crises and sovereign defaults, with the ultimate impact of protecting livelihoods during the COVID-19 emergency, returning to economic growth, and resuming declines in poverty.
The objective of this evaluation was to conduct an early-stage assessment of the Bank Group’s response to the economic implications of the COVID-19 crisis, which is critical to inform the next steps in the response to the current crisis and help prepare for future crises. Taking stock of the Bank Group response at this point—including early successes and failures—is important to inform the next set of Bank Group support efforts. The next phase of the Bank Group response will need to support both countries still mired in the effects of the COVID-19 pandemic, including its economic implications, and countries engaged in restructuring and recovery. An early assessment is also essential for extracting lessons from the Bank Group’s early response to the COVID-19 crisis to prevent, prepare for, and better address future crises. The findings, lessons, and recommendations in this report are designed to contribute to learning for the Bank Group overall. They may be useful in adapting to various phases of the current crisis and, potentially, future crises. However, they are intended to be applied at a strategic and institutional level, not to provide ready-made solutions for the unique challenges of specific operations or projects. A parallel Independent Evaluation Group evaluation, The World Bank’s Early Support to Addressing COVID-19: Health and Social Response, examines early World Bank support for addressing the health and social implications of the pandemic.
The evaluation assesses the Bank Group’s early response to the COVID-19 economic crisis. We examined the Bank Group’s early response to the crisis, defined as interventions over the 15 months of April 2020 through June 2021. Although the case studies cover the whole evaluation period, the portfolio analysis considers a subset of the evaluation period, from April 2020 to April 2021, based on Bank Group COVID-19 response data availability. To assess learning during the crisis, we considered two evaluation windows: the acute crisis phase (April 1, 2020, to December 31, 2020) and the incipient recovery phase (January 1, 2021, to June 30, 2021). The two phases were identified based on the Oxford Stringency Index and country-level economic indicators, including gross domestic product. The objective of identifying the two windows was to assess whether the Bank Group internalized learning from the first period of the crisis to address the challenges that were materializing in the (incipient) recovery phase.
We studied the relevance and quality of the Bank Group’s response to the COVID-19 crisis. We assessed the relevance of the Bank Group’s interventions on three dimensions: (i) the extent to which the Bank Group targeted its early response based on clients’ and sectors’ needs, (ii) the extent to which the Bank Group used timely diagnostics and lessons from past crises to inform its early response, and (iii) the extent to which the early response leveraged the Bank Group’s comparative advantages. We also studied the quality of the Bank Group response on three dimensions: (i) the extent to which the Bank Group’s early response influenced client strategies, (ii) the extent to which the Bank Group coordinated its early response among its constituent institutions and with development partners, and (iii) how well the Bank Group’s early response handled monitoring, safeguards, and governance. Finally, we assessed how well the Bank Group learned during the crisis, including how well it learned from its own work on COVID-19 (intracrisis learning), developed countries’ approaches to COVID-19, and past crises (intercrisis learning).
The evaluation has limitations because of its scope. The evaluation focuses on assessing the Bank Group’s response to the economic implications of the COVID-19 crisis (“the impact of the crisis on livelihoods”). It was developed concurrently with—and is complemented by—an evaluation of the World Bank’s health, human capital, and social response to the COVID-19 crisis (which looks at “the impact of the crisis on lives”). The decision to have two separate reports stems from the recognition that assessing the Bank Group’s work on lives and livelihoods in a single evaluation would have limited the depth of the analysis. Both evaluations will be further complemented by future, ex post assessments of the impact of the crisis.
This thematic evaluation is limited to the Bank Group’s response to the economic implications of the COVID-19 crisis. It is not a corporate evaluation or a comprehensive evaluation of the COVID-19 crisis responses of all three institutions. It was developed in concurrence with—and it is complemented by—a parallel evaluation of the World Bank’s health, human capital, and social response to the COVID-19 crisis. Neither evaluation assesses overall corporate response to the crisis, be it of the World Bank, the International Finance Corporation (IFC), or the Multilateral Investment Guarantee Agency (MIGA). Rather, they look at the Bank Group’s response on their respective topics. For example, activities under the IFC Global Health Platform are outside the scope of this evaluation because the underlying projects are related to the health sector.
The evaluation also has limitations because of its nature as an early-stage learning assessment. Because the COVID-19 response is ongoing and occurred in a context of high uncertainty about how to address the global economic crisis quickly and effectively, this early-stage evaluation does not attempt to estimate the probability that early response projects will succeed. The identification of the two windows in the evaluation period—the acute crisis and incipient recovery phases—is based on a preliminary assessment. The evaluation of the incipient recovery phase—which lasts only 6 months, including 4 months of portfolio data—should be regarded as a preliminary assessment of the Bank Group’s work supporting countries’ and firms’ initial recovery, with the aim of informing future Bank Group actions to support the next phase of the recovery. Activities under the IFC Base of the Pyramid Platform, which the Board of Executive Directors approved in February 2021, are outside the scope of this evaluation because the underlying projects are outside the evaluation period.
Finally, the evaluation is limited because of certain methodological constraints. We treated the IFC and MIGA portfolios only via a sample of firm-level cases. Therefore, we could not assess the relevance or quality of the overall IFC and MIGA response across all sectors and industry groups. We used a novel framework to analyze country needs, and there were data limitations on the analysis in some countries and sectors. The availability of internal data (such as supervision and portfolio documents), external data, and key informants also limited the evaluation. This evaluation assesses only IFC advisory services and World Bank advisory services and analytics to the extent that they were linked to country- and firm-level case studies because extensive coverage of advisory work was not feasible.
The World Bank Group Delivered the Largest Crisis Response in Its History Thanks to Strategic and Agile Decision-Making and Learning from Past Crises
At the onset of the pandemic, Bank Group senior management demonstrated strategic thinking, agile corporate decision-making, and learning from past crises. Senior management articulated the Bank Group strategy early in March 2020. The World Bank’s strategy included front-loading International Development Association (IDA) spending allocations and seeking an unprecedented IDA Replenishment a year ahead of schedule. It also included activating the International Bank for Reconstruction and Development’s crisis buffer to release additional financing. The World Bank aligned with World Health Organization guidance on technical health issues. With the International Monetary Fund (IMF), it launched a global convening effort on debt suspension via the Debt Suspension Service Initiative to help indebted client countries free up fiscal space for crisis response. The World Bank established the Emergency Operations Center and worked across various groups and functional areas to address different facets of the crisis. Similarly, IFC and MIGA organized emergency response committees working across industry groups and launched fast-track COVID-19 facilities, guarantee program envelopes, and a joint trade finance initiative. The design and agile deployment of the MIGA and IFC fast-track COVID-19 facilities and the increased use of the World Bank Multiphase Programmatic Approach demonstrated learning from previous crises.
As a result of agile corporate actions, the Bank Group delivered the largest crisis response in its history and the largest COVID-19 response across development partners. The Bank Group committed $157 billion to address the COVID-19 crisis, of which it specifically committed $65 billion to address the economic implications of COVID-19 (International Bank for Reconstruction and Development and IDA: $49 billion; IFC: $10 billion; MIGA: $6 billion). World Bank commitments went mainly to Africa and Latin America and the Caribbean, Regions with many IDA clients that had greater economic needs to respond to the crisis. The Equitable Growth, Finance, and Institutions Practice Group and the Social Protection and Jobs Global Practice provided the main share of the World Bank response. The Financial Institutions Group provided the main share of the IFC investment services response. World Bank disbursements to IDA clients in Africa and the Middle East and North Africa Regions were relatively low. IFC disbursements to clients were high in all regions.
The Bank Group’s response drew on a mix of existing instruments and new approaches. The World Bank expanded its use of the Multiphase Programmatic Approach—in addition to individual investment projects and development policy operations—to address the crisis. The World Bank response also leveraged contingent emergency response components and catastrophe deferred drawdown options as part of its lending operations based on countries’ conditions. IFC developed new envelopes under its fast-track COVID-19 facility and programs driven by the $2 billion Real Sector Crisis Response Envelope and the $6 billion Financial Institutions Group Response Envelope. MIGA launched two guarantee programs totaling $5 billion focused on the financial sector: credit enhancement and capital optimization. MIGA also supported IFC’s trade finance activities by issuing risk coverage support to commercial banks.
The Bank Group’s support contributed to saving jobs and protecting households’ incomes. Its response to the economic implications of COVID-19 sought to directly meet the needs of governments, financial institutions, and firms, addressing the needs of households indirectly. The Bank Group’s swift and broad interventions supported macrofiscal and financial stability, public sector institutional improvements, and capital enhancement and liquidity for financial institutions and MSMEs in sectors affected by the pandemic and the lockdowns, resulting in jobs and incomes saved.
The World Bank Group Response Was Mostly Relevant Overall and Highly Relevant in Low-Income Countries, through Targeting, Informed Design, and Comparative Advantages
The Bank Group’s early response was highly relevant to low-income countries, which had greater needs. Bank Group support focused on low-income countries, which tended to be more vulnerable and needed more support than richer countries during the COVID-19 pandemic in 2020. Yet, some countries with high needs (such as Angola, Gabon, and South Africa) received limited aggregate support because of various constraints, including, for example, having small, ongoing programs with the World Bank or being nonaccrual status.
There was considerable variation in how well Bank Group support aligned with the sector-specific needs within each country. In some countries (such as Cabo Verde and Pakistan), the Bank Group supported all sectors in need (economic, public sector, and social protection). In other countries (such as the Philippines and Senegal), it supported select sectors (economic and social protection) and did not support other sectors in need, such as agriculture, manufacturing, and services.
Macrofiscal support via development policy financing was highly relevant to client governments. The volume of commitments for macrofiscal support was higher than during the global financial crisis of 2008 and higher than prepandemic support, suggesting the relevance of the response in addressing the economic shock in client countries. The Bank Group directed budget support primarily to social transfers, institutional strengthening, the financial sector, and MSMEs.
The IFC and MIGA early response was mainly relevant to local banks with insufficient risk appetite to provide crisis financing. Financial sector support to repeat clients dominated the IFC and MIGA early response. Without IFC and MIGA, existing clients would have either defaulted on loans or cut back on their onlending programs, leading to severe supply chain disruptions and job losses.
Existing diagnostics informed the World Bank’s early response. The World Bank’s early response aligned well with the World Development Report 2022: Finance for an Equitable Recovery, country program frameworks, and analytical instruments such as Financial Sector Assessment Programs and Country Private Sector Diagnostics.
The Bank Group used lessons from past crises well to inform its early response. Consistent with lessons learned from past crises, country analytical work contributed to the World Bank’s early response, which aimed to address the pandemic through a three-pronged approach: budget, public health, and MSME support (for example, in Cabo Verde, Georgia, and the Philippines). Similarly, IFC adapted its response to the local context well based on lessons from the global financial crisis (for example, IFC’s project with Liquid Telecom). MIGA supported trade finance activities in partnership with IFC, backstopping losses for client banks. The IFC-MIGA Global Trade Finance Initiative, an innovative new product based on lessons from past crises, intended to support MSME value chains in Africa that had insufficient access to credit, training, and certification.
Two MIGA projects that did not fully consider country conditions in their designs were less relevant. MIGA overestimated the liquidity needs of banks in Panama and in some African countries (Botswana and Eswatini). Although highly complex at the time of the COVID-19 crisis, assessing country conditions carefully is important to channel resources to vulnerable clients.
Country office staff needed greater clarity on crisis protocols, mechanisms, and guidelines for developing targeted approaches to address the economic implications of a crisis. Many country teams welcomed diagnostic tools, real-time sector analysis papers, and the World Development Report 2022 (World Bank 2022d). However, they seek greater clarity and preparedness for day-to-day matters, including real-time dashboards to inform sector targeting, guidance on strategic portfolio choices, and surge-capacity plans to promote staff welfare during crises.
The Bank Group’s capacity to build its crisis response on its comparative advantages—global footprint and global knowledge that translates into financing and advisory support—was mixed. The Bank Group used existing diagnostics and the World Development Report 2022 well to inform its response to the crisis (World Bank 2022e). It also compiled new data—for example, high-frequency phone surveys of households and surveys of businesses and multinational corporations—to inform its analytical work. The Bank Group also leveraged its global footprint well. Country office staff demonstrated leadership at various levels despite facing new crisis-related responsibilities: personal and family welfare and the welfare of existing and new clients. However, the Bank Group did not sufficiently build on new global knowledge work to inform portfolio management and strategy or to repurpose policy and institutional strengthening work. The Bank Group also did not systematically identify and apply lessons from developed countries (such as New Zealand and Switzerland) to its operational work on support to firms and furloughed workers (WEF 2020).
Data gaps on recipients’ use of funds may impede targeted approaches in future crises. Limited evidence is available on how the Bank Group leveraged global data and its access to country budget systems to ensure that its lending reached the most vulnerable households. Croatia (a noncase country) exhibited best practice in this aspect by establishing extensive tracking of funds to recipients via national development banks, the state audit office, and the state financial agency. More than 40 countries (mostly in Africa) established extrabudgetary funds (EBFs) to support firms and citizens. No evidence is available on how the Bank Group used its global reach to align with EBFs to address specific vulnerabilities within countries. Similarly, no evidence is available on the interaction among Bank Group funds and EBFs in supporting vulnerable households. Thus, we could not assess clients’ motivations in setting up EBFs to complement multilateral support during COVID-19 or the risks that such EBFs might entail.
Quality through Influence, Coordination, and Safeguards
The Bank Group influenced clients’ strategies and actions in the first phase of the evaluation period (the acute crisis phase) but was less on target in the second phase of the evaluation period (the incipient recovery phase). The World Bank’s early response influenced governments’ strategies well, especially their macrofiscal and social safety aspects (for example, in Cabo Verde and Senegal). We did not find evidence, however, that the Bank Group consistently demonstrated intracrisis learning. In particular, Bank Group interventions in the first six months of the incipient recovery phase (January 2021 through June 2021) did not reflect lessons from the acute crisis phase (April 2020 through December 2020). During the acute crisis phase, it became clear that firms in contact-intensive industries (such as transport, retail, hotels, tourism, and construction) needed increased support. IFC and MIGA did not target these firms for increased support in the incipient recovery phase (early 2021). We also did not find evidence of the Bank Group switching from emergency interventions to supporting the recovery of countries and private sector clients that were ready to move out of the acute crisis phase (for example, Senegal and Vietnam). One reason was the long disbursement cycles embedded in projects funded outside the fast-track COVID-19 facility (IFC) or via traditional investment project financing (World Bank). Although these findings should be considered preliminary, given the limited evaluation period (6 months overall with 4 months of portfolio data), they provide early insights for the Bank Group to take informed actions during the rest of the recovery.
The Bank Group has also not yet influenced governments’ strategies and actions to fully reflect the unintended consequences of the massive buildup of sovereign debt and budgetary reallocations by clients in their early responses. Even before the COVID-19 crisis, many poor countries were heavily indebted. The pandemic resulted in massive unavoidable expenditures to protect lives and livelihoods. Many countries that needed additional funds to address the COVID-19 shock already had high sovereign debts. Some of them—including Angola, Eritrea, Guinea-Bissau, Lebanon, Mongolia, Mozambique, Nicaragua, Sierra Leone, Sudan, the Syrian Arab Republic, and Zambia—might be in too much distress to recover. In this evaluation, stakeholders of emerging markets and developing economies (9 country case studies and 10 firm case studies) expressed concerns about sovereign debt and borrowing costs. Existing fair debt resolution mechanisms (such as the Common Framework for Debt Treatment and the Debt Service Suspension Initiative) helped during the evaluation period. However, stakeholders perceive them as insufficient to mitigate the looming debt crisis and the potential economic implications in some parts of the world (for example, Sri Lanka’s sovereign default in June 2022). These doubts arise partly because multilateral debt (including IMF and World Bank debt) is not eligible for restructuring. Because the World Bank cannot solely manage sovereign debt crises, it engaged with the IMF in the sovereign debt dialogue at both the global and country levels. The evaluation found, however, limited evidence to date on the extent to which these initiatives have influenced governments to fully reflect in their plans the unintended consequences of the massive buildup of sovereign debt caused by the crisis. This is partly because the World Bank’s loans and other multilateral debt are not included in the Debt Service Suspension Initiative, which also potentially limits countries’ ability to engage with non–Paris Club members and private creditors.
Collaboration between the World Bank and the IMF to respond to the pandemic was effective both at the corporate level and the intervention level. At the corporate level, both institutions organized high-level events (for example, the Africa high-level panel in April 2020) to crowd in thought leadership and mobilize partners to support the COVID-19 response. The World Bank’s proactive engagement with the IMF promoted effective collaboration on interventions, which was critical to addressing economic implications in client countries (for example, Ecuador and Pakistan).
The World Bank, IFC, and MIGA coordinated well in their early response to support the financial sector and MSMEs, but collaboration to provide support via structured finance was limited. Latin America and the Caribbean and Europe and Central Asia offer good examples of Bank Group collaboration, with World Bank Partial Credit Guarantee facilities complementing IFC and MIGA support to microfinance institutions and small and medium enterprise banks. However, especially in the incipient recovery phase (the second part of the evaluation period), we did not find evidence of fast Bank Group responses to clients’ requests for structured finance products to support recovery. Client requests included Partial Credit Guarantee facilities, which coordinated World Bank–IFC interventions could provide. Georgia was an exception and a best practice case.
Coordination with regional development banks and other international financial institutions worked well in several cases. Coordination with development partners varied based on country office staffing levels, prepandemic perceptions, and prior arrangements. The World Bank, the Asian Development Bank, and the Asian Infrastructure Investment Bank joined the United Kingdom’s Department for International Development, the United States Agency for International Development, and the Japan International Cooperation Agency to coordinate with the Resilient Institutions for Sustainable Economy project in support of Pakistan’s efforts to strengthen its macrofiscal framework. The World Bank and other international financial institutions also coordinated well to respond with a large aid package to Ecuador: the World Bank committed $1.4 billion through three development policy operations (intended to be disbursed programmatically over three years), the IMF provided $644 million in rapid financing to bridge its extended fund facility support, the Inter-American Development Bank provided a $640 million package, the Development Bank of Latin America lent $500 million, and the Latin American Reserve Fund lent $418 million. IFC’s early response catalyzed other development finance institutions to commit to Banco Davivienda and Ara Tiendas.
Neither the Bank Group nor the wider development community has a clear plan for responding to an economic or public health crisis—there is no playbook for either type of crisis. Authorities in client countries and World Bank country teams indicated the need for a dedicated central team in the Bank Group that would analyze the international response to the crisis, including in developed countries, and feed the learning from this analysis back to country teams in the form of advice.
The Bank Group’s engagements with the Board on the early response were comprehensive. Bank Group management has had frequent and substantive engagements with the Board on the early response since the onset of the global pandemic and throughout the evaluation period.
The Bank Group did not set or update specific volume targets during the early response. The Bank Group institutions did not define a corporate results framework to measure the results of Bank Group support in addressing the economic implications of COVID-19. Results frameworks of COVID-19 interventions analyzed in the case studies were not different from the results frameworks of non-COVID-19 operations. We could not, therefore, assess whether the Bank Group is likely to meet its targets and monitor them during the recovery phase of the pandemic.
Although the Bank Group streamlined environmental, social, corporate, and fiduciary requirements at the time of the crisis, assessing other stakeholders’ concerns—particularly for the real sector—may shed light on further ways to increase flexibility. The World Bank supported teams and clients with implementing the Environmental and Social Framework approved on October 2018 in the context of COVID-19 operations, including by developing templates to facilitate their application at the onset of the crisis. Environmental and social Global Practices at the World Bank created a streamlined, centralized clearance system to expedite clearance for the initial slate of COVID-19 response projects. IFC made adjustments to its environmental and social appraisals, including by introducing streamlined documentations and virtual appraisals for lower-risk projects. World Bank management also shortened corporate and fiduciary clearance deadlines, delegated some approvals, and briefly paused gender tagging. Stakeholders, however, still perceive environmental and social safeguards, fiduciary, and corporate requirements as cumbersome in the context of operations addressing the economic implications of the COVID-19 crisis. Some real sector clients indicated that they were overwhelmed by multiple Environmental and Social Framework outputs required by the World Bank. The Bank Group could further assess stakeholders’ concerns and consider the possibility of further adapting environmental, social, fiduciary, and corporate requirements to better respond to clients’ needs at times of crisis, especially in high-contact sectors. Streamlining safeguards for the real sector during a crisis requires the Board’s approval.
Six factors affected the quality of the Bank Group’s early response. They were (i) engaging with global partners outside of the development community (such as the International Labour Organization, World Health Organization, and United Nations Conference on Trade and Development); (ii) mobilizing and engaging with local partners and stakeholders (Cabo Verde, Pakistan); (iii) surge-resourcing plans (Cabo Verde); (iv) prioritizing staff welfare during the crisis (for example, Country Management Units in Ecuador and Senegal); (v) underuse of certain Bank Group financing instruments (such as the contingent emergency response component); and (vi) capacity and strengthening of government implementation partners (for example, the Philippine Guarantee Corporation).
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. Inflationary pressures on governments, firms, and households in emerging markets and developing economies have increased along with higher borrowing costs, threatening any nascent recovery from the COVID-19 economic crisis (FES and CBI 2021). The situation is compounded further by other ongoing and 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 various levels, the role of the Bank Group as a systemic “first responder” to crises has become even more critical. According to the Bank Group’s paper “Navigating Multiple Crises, Staying the Course on Long-Term Development: The World Bank Group’s Response to the Crises Affecting Developing Countries” (World Bank 2022c), the pandemic is one of several related and compounding crises. Others include the war in Ukraine, broader global macroeconomic imbalances, extreme climate-related events, and the combined effects of these circumstances on global food and energy security. Given the broad range of economic support and policy measures implemented across countries in response to these ongoing crises, the Bank Group cannot address COVID-19 recovery in isolation. The Independent Evaluation Group offers two recommendations for the Bank Group’s consideration to strengthen its role in addressing not only the economic implications of COVID-19 but also other ongoing 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.