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

Chapter 4 | Quality of the World Bank Group Early Response

Highlights

The quality assessment focused on whether the World Bank Group COVID-19 economic interventions (i) influenced government policies and the actions of governments and firms; (ii) were coordinated internally, between the Bank Group and the International Monetary Fund, and between the Bank Group and other partners; and (iii) had adequate results and monitoring frameworks, safeguards, and governance. The assessment also looked at whether the quality of the Bank Group’s response was informed by intracrisis learning.

The Bank Group early response positively influenced client country strategies, especially regarding macrofiscal and social safety nets. The Bank Group’s influence on governments’ actions and especially on firms’ actions in the incipient recovery phase (the second part of the evaluation period) was less on target because the Bank Group’s capacity to learn from developed countries and from its own experience (intracrisis learning) was limited. Support to firms operating in contact-intensive industries, which were highly affected by the crisis, was low. The World Bank produced several knowledge products and engaged with the International Monetary Fund in debt dialogue at both the global and country levels. However, there is limited evidence on the extent to which these initiatives influenced governments to collectively develop solutions to the massive buildup of sovereign debt caused by the crisis.

The World Bank’s proactive engagement with the International Monetary Fund improved the quality of the response to the crisis, but coordination with regional development banks and other international financial institutions was mixed. The World Bank, the International Finance Corporation, and the Multilateral Investment Guarantee Agency coordinated well to support the financial sector and micro, small, and medium enterprises, but Bank Group–structured finance solutions were limited.

The Bank Group did not set or update specific volume targets during the early response, and thus we could not assess whether it is likely to monitor or meet its targets during the recovery phase of the pandemic. The Bank Group could have assessed the need to adjust compliance (including safeguard) requirements to facilitate supporting the real sector during the crisis. Such flexibility requires the Board of Executive Directors’ involvement and approvals.

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

This chapter is organized in three sections. First, we review the quality of the Bank Group early response. Second, we identify factors affecting the quality of the response. Finally, we describe opportunities to improve the quality of the Bank Group response in the recovery phase of the COVID-19 pandemic and future pandemics.

The quality of the Bank Group’s response is assessed based on three dimensions and through a real-time adaptive management lens. The dimensions of the assessment are (i) the extent of the Bank Group’s influence on client strategies and actions; (ii) the extent of coordination within the Bank Group (World Bank, IFC, and MIGA) and with partners; and (iii) the adequacy of the Bank Group’s monitoring, safeguarding, and governance activities. We applied a real-time adaptive management lens to the quality assessment, looking at whether interventions in the incipient recovery phase (the second part of the evaluation period) reflected learning from the acute crisis phase (the first part of the evaluation period; intracrisis learning), and whether the Bank Group applied lessons learned from previous crises and from developed countries’ experience with COVID-19.

Influence on Client Strategies and Actions

From the inception of the COVID-19 crisis, the Bank Group quickly developed new sector knowledge and repurposed its commitments to influence client strategies and actions. The Bank Group responded quickly to help clients address the economic implications of the COVID-19 crisis by (i) developing new sector knowledge and frameworks (including by establishing a partnership on COVID-19 with WHO and the International Labour Organization); developing the COVID-19 Approach Paper in April 2020 (World Bank 2020e), which identified the broad needs of the client governments at the time of the crisis; and focusing the World Development Report 2022 on the needs of the financial sector during a pandemic shock (World Bank 2022e); (ii) conducting timely assessments of country needs related to COVID-19, including through the use of big data and data science; (iii) increasing its overall commitments from $67 billion to $121 billion, of which $65 billion was specifically dedicated to respond to the economic implications of the COVID-19 crisis (April 2020–June 2021); and (iv) repurposing existing projects to help governments address the economic consequences of the crisis (World Bank) and support firms’ liquidity and avoid loan defaults (IFC and MIGA).

The World Bank’s early response had a positive effect on client governments’ macrofiscal strategies and social safety net approaches, and on households and MSMEs. The Senegal case study exemplifies these findings (box 4.1).

Box 4.1. Effect of the World Bank COVID-19 Early Response

As part of the early response, the World Bank developed an investment project to support the government of Senegal in addressing youth employment, social safety nets, and resilient recovery. The World Bank leveraged its comparative advantages—knowledge of the Senegalese labor markets and private sector and the possibility to quickly translate knowledge into financial support—to provide local informal sector workers and small and medium enterprises with economic opportunities amid the pandemic. For instance, the project implementation agency outsourced the production and delivery of meals to public schools to approximately 200 small suppliers (mostly women’s associations) who produce food packs in frontier provinces. Through these local community partnerships, the project allowed microbusinesses whose economic resources were cut away by the pandemic to continue to earn an income. The early response supported by the project provided the implementation agency with the opportunity to better connect to frontier provinces, strengthen service delivery mechanisms, and build new relationships with local communities.

Source: Independent Evaluation Group.

The Bank Group’s influence on governments’ and firms’ actions in the incipient recovery phase was less on target, as demonstrated by limited support to contact-intensive industries and to countries and firms that entered the incipient recovery phase. We did not find evidence of innovative approaches to target segments of the economy that were particularly affected by the crisis or to adjustments in Bank Group support as the needs of clients changed over time. For example, during the acute crisis phase in the first nine months of the pandemic (April 2020–December 2020), it became clear that the COVID-19 crisis was having a disproportionately negative impact on sectors that depended on in-person contacts (such as tourism, manufacturing, construction, education, and retail). Analysis of IFC and MIGA portfolios in the incipient recovery phase suggests agile disbursements to the financial sector but limited support for contact-intensive industries. The average share of support going to contact-intensive industries during the incipient recovery phase was less than 5 percent; the remaining 95.4 percent went to noncontact-intensive industries. In 60 of the 81 countries receiving IFC or MIGA support across both the acute crisis phase and the incipient recovery phase, no support went to contact-intensive industries. Firms in these industries needed liquidity support at a greater scale and size than did firms in the financial and telecommunications sectors. Yet, across countries, a small share of Bank Group support went to contact-intensive industries (less than 10 percent of total commitments) and particularly to firms operating in contact-intensive industries. Even in countries with stronger IFC and MIGA support directly to firms in the real sector, a small share (less than 5 percent of total commitments) went to these industries. Similarly, in the incipient recovery phase (the second part of the evaluation period), the Bank Group—particularly IFC and MIGA—did not switch from supporting emergency interventions to supporting the recovery of countries (such as Senegal) and private clients that were ready to move out of the acute crisis phase. The World Bank also did not increase much needed support for social assistance in the incipient recovery phase (the second part of the evaluation period). The Pakistan case study, however, provides anecdotal evidence of an effective shift between the acute crisis phase (the first part of the evaluation period) and the incipient recovery phase (the second part of the evaluation period; box 4.2). The limited evidence on changes to the Bank Group’s support provided during the incipient recovery phase to better respond to clients’ needs is influenced by the fact that the incipient recovery period covered in the evaluation is short (only 6 months for the case studies and 4 months for the portfolio). Follow-up ex post evaluations will allow us to assess the quality of the Bank Group’s response during the recovery phase—including a possible shift of support from the financial to the real sector—more comprehensively.

Box 4.2. Adaptive Management in Pakistan

In Pakistan, early response to the crisis started with emergency repurposing of the portfolio and pipeline enabled by an early consultative approach of engaging local stakeholders, engaging the federal and provincial government simultaneously (the approach used in prior crises), implementing fast-track initiatives, and soliciting proposals from all Global Practices without restructuring. Together, these efforts resulted in US$40 million being repurposed from existing projects and positioned the World Bank as one of the first responders. Another US$40 million was canceled and added to the Pandemic Response Effectiveness in Pakistan Project.

Debt management and enhanced transparency were covered under pillar 1 of the Resilient Institutions for Sustainable Economy Project. For a country like Pakistan, the macrofiscal implications of debt management are significant. To free up fiscal space for the pandemic response, the World Bank and the International Monetary Fund urged the Group of Twenty to set up a Debt Service Suspension Initiative. Pakistan also requested that the Group of Twenty activate the Debt Service Suspension Initiative on May 1, 2020, which was expected to free up approximately US$1.8 billion that would be used to increase social, health, and economic recovery spending in response to the COVID-19 crisis. Resilient Institutions for Sustainable Economy provided support to the government of Pakistan to ensure that the government raises financing from all sources with the least cost and risk as it deals with the COVID-19 pandemic. The deferred debt payment translates to about 0.5 percent of Pakistan’s gross domestic product.a

Direct and targeted payments to low-income groups in Pakistan drove financial inclusion for the country, especially during the pandemic. The flagship safety net program of the government of Pakistan during COVID-19—Ehsaas—had initially envisioned financial inclusion for 7 million beneficiaries (90 percent of them women). However, with the pandemic’s socioeconomic implications, the program ended up reaching nearly 15 million beneficiaries through one-time direct payments into their newly opened bank accounts. It demonstrated the government of Pakistan’s ability to execute well and at scale.

Source: Independent Evaluation Group.

Note: a. https://www.worldbank.org/en/topic/debt/brief/COVID-19-debt-service-suspension-initiative.

The Bank Group’s capacity to learn from its own experience (intracrisis learning) and from developed countries was limited. The World Bank’s usual learning frameworks—based on South-South learning and recognized global best practices—were of limited relevance during the COVID-19 crisis. Low support to contact-intensive industries and to countries and firms that entered the incipient recovery phase pointed to limited intracrisis learning. Learning from developed countries was also limited. In addition to keeping enterprises from going under, several developed countries aimed to keep workers (partially) paid during the COVID-19 crisis (unlike what they did during the 2008 crisis). Although paying workers was costly, it allowed governments to keep the human capital in the economy in the right place during the “pause” forced by COVID-19 so the economy would be ready to rebound more quickly once the “play” button was pressed again. The Bank Group’s client countries could have benefited from similar policies.

COVID-19 led to a further increase in sovereign debt, one of the largest buildups since the creation of the Bretton Woods institutions. Budget support from the World Bank and development partners will not be sufficient for countries in debt distress. Commercial debt and multilateral debt incurred by client countries surged during the evaluation period, leading to one of the largest buildups of debt in clients since World War II (World Bank 2022e; see also figure B1.1.1). Fifty-eight percent of the world’s poorest countries are in debt distress or at high risk of it.1 The World Bank and its development partners’ early response via strong budget support was necessary for client countries but will likely be insufficient for subsequent phases of the response (staff and client interviews; IMF 2021b).

A further comparison of client country needs and sovereign debt increases during COVID-19 suggests that some countries are even more vulnerable on the economic front. Even before the COVID-19 crisis, there was high debt distress in a significant number of poor countries. Although this was not caused by the pandemic and instead is the result of a range of prior issues, it led to a number of the case study countries and countries not part of the case study group being in a vulnerable position, even at the start of the unprecedented shock caused by COVID-19. Many of these countries also had high need scores, which meant that they needed significant additional money to address the COVID-19 shock in its multiple facets. Figure 4.1 shows the position in 2020 for a number of these countries.

Figure 4.1. Comparison of Country Needs with External Debt

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Figure 4.1. Comparison of Country Needs with External Debt

Source: Independent Evaluation Group.

Note: Dashed lines indicate median values (full sample). AGO = Angola; CPV = Cabo Verde; ECU = Ecuador; GAB = Gabon; GEO = Georgia; GNB = Guinea-Bissau; GNI = gross national income; IMF = International Monetary Fund; LAO = Lao People’s Democratic Republic; LBN = Lebanon; LIC = low-income country; MNE = Montenegro; MNG = Mongolia; MOZ = Mozambique; MRT = Mauritania; NIC = Nicaragua; PAK = Pakistan; PAN = Panama; PHL = Philippines; SDN = Sudan; SEN = Senegal; SLE = Sierra Leone; SOM = Somalia; SRB = Serbia; TUN = Tunisia; ZMB = Zambia; ZWE = Zimbabwe.

Multilateral debt in the form of COVID-19 response was necessary but adds to medium-term risks for clients. Because of the urgent need to help client countries address the COVID-19 shock and the fact that this was only possible at the speed required by using existing financing modalities (that is, additional debt), the Bank Group and other financiers not only had no choice but also had a compelling justification to provide these debt-distressed countries with additional lending. Quite clearly, however, this necessary short-term measure had medium-term risks: even higher debt burdens at a time when these countries need to start recovering from the COVID-19 crisis and building resilience against future shocks. Although a detailed analysis of the debt situation of individual countries goes beyond the scope of this evaluation, the starting position indicates that a significant number of countries might be in too much distress to recover successfully. These include Angola, Eritrea, Guinea-Bissau, Lebanon, Mongolia, Mozambique, Nicaragua, Sierra Leone, Sudan, the Syrian Arab Republic, and Zambia.

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 response. Emerging markets and developing economies’ stakeholders (9 country case studies and 10 firm case studies) expressed concerns about sovereign debt and borrowing costs. Although existing fair debt resolution mechanisms such as the Common Framework for Debt Treatment and the Debt Service Suspension Initiative helped during the evaluation period, stakeholders perceive them as insufficient to mitigate the looming debt crisis and the potential economic implications in some parts of the world (for example, in Sri Lanka during June 2022). At the time of this writing, several highly indebted countries (pre-COVID-19 debt buildup) faced food and energy crises, inflationary pressures, and exposure to foreign currency debt from non–Paris Club lenders. These issues create differences in the debt profile between the various creditors. Clients expect nuanced and globally coordinated approaches from the World Bank and its development partners to address the likely new wave of crisis looming in highly indebted countries. The World Bank produced several knowledge products and engaged with the IMF in debt dialogue at both the global and country levels; however, there is limited evidence on the extent to which these initiatives have influenced governments to collectively develop solutions to the massive buildup of sovereign debt caused by the crisis.

Past crises and debt resolution frameworks offer lessons for the Bank Group’s influence on and support to highly indebted countries. Lessons from operating debt resolution facilities such as the Heavily Indebted Poor Countries Initiative in 1996 and 1999 were yet to be linked with the global solidarity packages or embraced fully by the development community during the evaluation period (box 4.3).

Box 4.3. The Heavily Indebted Poor Countries Initiative

The World Bank and the International Monetary Fund launched the Heavily Indebted Poor Countries (HIPC) Initiative in 1996. The subsequent enhanced HIPC Initiative in 1999 aimed to accelerate debt relief, and the Multilateral Debt Relief Initiative brought on board the African Development Bank in 2005 and the Inter-American Development Bank in 2007.

The objective was to ensure that low-income countries could continue poverty reduction–related expenditures. The enhanced HIPC Initiative required countries to spend fiscal savings from debt relief on poverty-reducing programs, such as in health and education.

The HIPC Initiative was highly standardized. Creditors granted debt relief to debtor countries on common principles that helped address the information asymmetries and coordination problems among multiple creditors that can hinder restructuring agreements.

The HIPC Initiative offered relief on debt held by the International Monetary Fund and World Bank. Participation of multilateral institutions is important because evidence suggests that creditors and debtors should aim for comprehensive debt relief when debt is unsustainable.

Debt relief has been substantial. These initiatives provided 38 countries with debt relief totaling more than US$100 billion. External debt in low-income countries fell dramatically from its peak in 1994 (figure B4.3.1). Before the HIPC Initiative, eligible countries spent on average more on debt service than on health and education combined. Their health, education, and other social services expenditures are now approximately five times their debt service payments.

Figure B4.3.1. External Debt in Low-Income Countries

Image

Source: World Bank 2022b.

Note: GDP = gross domestic product.

Figure B4.3.1. External Debt in Low-Income Countries

Source: World Bank 2022b.

Note: GDP = gross domestic product.

Sources: IMF 2021a; World Bank 2022b.

Similarly, recent IEG evaluations offered important lessons for the Bank Group’s influence on client countries’ public finance management and external debt assessments during the pandemic. Two parallel IEG evaluations concluded during the evaluation period offered lessons on the Bank Group’s strategies for influencing clients, with a focus on public finance and external debt (World Bank 2021a, 2021b; box 4.4). For example, the challenge of tackling non–Paris Club members’ and private creditors’ debt needs to be collectively addressed by the multilaterals, client governments, and the creditors.

Box 4.4. Recent Independent Evaluation Group Evaluations on Public Finance and External Debt

The Independent Evaluation Group has conducted two recent evaluations on public finance and external debt. The first is The International Development Association’s Sustainable Development Finance Policy: An Early-Stage Evaluation (World Bank 2021a), which aimed to provide early insights into the rollout of the policy and how it may be improved to minimize the risk of debt distress. As the World Bank considers its actions in the post-COVID-19 environment characterized by a further significant deterioration of public debt distress in member countries and much reduced fiscal space, three principles recommended by this evaluation are worth reiterating: (i) expand performance and policy actions, (ii) set them explicitly within a longer-term reform agenda, and (iii) use them to target the main country-specific drivers of debt stress and risk.

The second Independent Evaluation Group evaluation, World Bank Support for Public Financial and Debt Management in IDA [International Development Association]-Eligible Countries (World Bank 2021b), identified important gaps in complementarities between World Bank support for public finance management and for debt management. Specifically, the World Bank has provided significant and well-coordinated support to improve public debt management in many countries eligible for IDA assistance and facing rising debt vulnerabilities. However, this support has not been systematically accompanied by efforts to improve public financial management (and public investment management in particular), despite widely recognized synergies among borrowing, fiscal transparency, and the quality of public investment. The principles suggested in this evaluation are (i) regularly monitoring the quality of the key pillars of public financial and debt management for each IDA-eligible country, and (ii) prioritizing and sequencing World Bank support for public financial and debt management capacity building and reform in IDA-eligible countries. Such a framework could inform the design of budget support operations, investment projects, and country-specific performance and policy actions under the newly adopted sustainable development finance policy.

Source: Independent Evaluation Group.

Coordination

Collaboration between the World Bank and the IMF to respond to the pandemic was effective both at the corporate level and at the intervention level. Both institutions increased their commitments significantly after COVID-19 hit: the World Bank by about 60 percent (from $43 billion to $71 billion; calendar years 2019–20) and the IMF by three times during the first year of the pandemic. At the corporate level, both institutions organized high-level knowledge events and mobilized partners to support the COVID-19 response (for example, the Africa high-level panel in April 2020). Although the two institutions took slightly different approaches on the level of conditionality to extend support (the World Bank is more stringent than the IMF),2 key informants expressed positive views on the coordination mechanisms at the corporate level. Interviews with staff from both the World Bank and the IMF suggest that an ex ante joint crisis response plan would further improve the effectiveness of the collaboration between the two institutions in reacting to future crises, given that the World Bank cannot solely manage sovereign debt issues.

The World Bank coordinated well with the IMF and development finance institutions on macrofiscal issues and debt service suspension, including through joint policy dialogue with governments. At the start of the pandemic, the World Bank and the IMF urged the Group of Twenty to set up the Debt Service Suspension Initiative. Along with the IMF, the World Bank actively supported countries seeking debt restructuring under the Common Framework, providing a critical input to the process through the joint debt sustainability analysis. In the cases analyzed, the Bank Group demonstrated good coordination with the IMF and more frequent World Bank–IMF joint macrofiscal policy dialogue with client governments, compared with prepandemic times. In some cases (for example, Pakistan and Serbia), the World Bank and the IMF established working groups to discuss and agree on reforms to help client governments weather the crisis. World Bank–IMF collaboration in Ecuador and Pakistan exemplifies this finding (box 4.5).

Box 4.5. World Bank–International Monetary Fund Collaboration in Ecuador and Pakistan

In Ecuador, the International Monetary Fund (IMF) and the World Bank coordinated on the design of the Extended Fund Facility program and the development policy financing series to ensure consistency and complementarity of the policy measures being supported.a The World Bank’s early response (April 2020) on the budget reform and on Ecuador’s social safety net and social assistance needs was perceived by the government of Ecuador as high quality. The World Bank advised and led the design of the conditionality in the IMF program in these areas. The World Bank’s work revealed incorrect reporting of the budget figures by the country authorities, which led to a delay in the initial extended fund facility support by the IMF and the reassessment of the IMF program with an interim emergency bridging loan and the preparation of a new, larger extended fund facility operation. The close coordination between the two institutions continues in jointly monitoring the remaining and large hidden fiscal contingencies in three areas: state-owned banks, state-owned enterprises, and the pension system. More needs to be done to quantify and address them.

In Pakistan, the World Bank early response via budget and liquidity support showed strong coordination between the World Bank and the IMF, ranging from frequent policy dialogue on macrofiscal constraints to project sequencing to address the various dimensions of the crisis (such as balance of payments, institutions to respond to the crisis, and social safety nets). The IMF initiated the first response in Pakistan via the US$1.4 billion Rapid Financing Instrument and support in April 2020 to meet Pakistan’s balance of payment needs stemming from the COVID-19 outbreak a month earlier. The World Bank coordinated with the IMF on its early response, the US$500 million Resilient Institutions for Sustainable Economy Project in June 2020. This project was followed in May 2021 by a US$500 million World Bank development policy financing series for Pakistan, Securing Human Investments to Foster Transformation, which supplemented the existing social safety net program in Pakistan (Ehsaas). Besides the IMF, the World Bank Group also interacted with other international financial institutions to develop joint projects, maintaining periodic meetings to coordinate their support. The World Bank also helped start a development partners working group, which has met regularly since the start of the pandemic to coordinate the response on the procurement, administration, and logistics of vaccinations.

Source: Independent Evaluation Group.

Note: a. The IMF established the extended fund facility to provide assistance to countries experiencing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position. An extended fund facility supports comprehensive programs, including the policies needed to correct structural imbalances over an extended period.

The early response to support the financial sector and MSMEs was well coordinated within the Bank Group, especially between IFC and MIGA. The World Bank’s Partial Credit Guarantee facilities complemented IFC’s and MIGA’s focus on maintaining liquidity in commercial microfinance institutions and small and medium enterprise banks in Africa and in Latin America and the Caribbean. Colombia and Europe and Central Asia exemplify this finding (box 4.6).

Box 4.6. World Bank Group Coordination in Colombia and Europe and Central Asia

In Colombia, the initial International Finance Corporation (IFC) firm-level support in Latin America and the Caribbean (for example, a US$600 million senior loan to Davivienda at the onset of the pandemic) had a catalytic effect during the second year of the pandemic by crowding in new investor financing. The initial support package to Davivienda consisted of a US$100 million senior loan for onlending to women-owned small and medium enterprises, and a US$500 million Basel III–Tier 2 loan. The Basel III–Tier 2 loan catalyzed new investors (such as the Organization of the Petroleum Exporting Countries Fund for International Development [OFID]) to the region; increased the client firm’s market share in the micro, small, and medium enterprise space from 14 percent in 2019 to 20 percent in 2022; and increased support to low-income housing and green buildings. A year after IFC’s financing package invested in Davivienda, the Inter-American Development Bank, the International Development Finance Corporation, and FinDev Canada jointly provided subordinated loans for a long tenor of 10 years (US$390 million). In parallel, the Multilateral Investment Guarantee Agency (MIGA) and IFC coordinated well to support this systemically important local bank. MIGA guarantee support sat adjacent to the first US$600 million IFC financing package. Furthermore, MIGA supported a loan package from OFID through a guarantee, which allowed OFID to participate in the IFC-led financing as a parallel lender. The MIGA guarantee protected the lender (OFID) against the risks of currency inconvertibility and transfer restrictions.

In Europe and Central Asia, MIGA and IFC coordinated activities to support a systemically important commercial bank client, ProCredit Holding. Under its COVID-19 response program pillar (Countering Adverse Economic Impacts during the COVID-19 Crisis), MIGA issued capital optimization guarantees of €218.5 million to ProCredit Holding to cover €230 million of its equity investments in eight ProCredit subsidiaries (Albania, Bosnia and Herzegovina, Georgia, Kosovo, Moldova, North Macedonia, Serbia, and Ukraine) in central, eastern, and southeastern Europe against the risk of expropriation of funds with respect to the mandatory cash reserves of the subsidiaries held at their respective central banks for a period of five years. MIGA’s support to ProCredit was mainly to guarantee client lending for climate financing and increased efficiency of onlending to micro, small, and medium enterprises. MIGA and IFC collaborated mostly on environmental and social aspects (such as data sharing and joint supervision plans) and during the initial stages of due diligence of ProCredit Holding (for example, reviewing client firms’ existing environmental and social systems at the holding company level). IFC has information on ProCredit at the holding company level; MIGA has this information at the subsidiary level. Without continued MIGA support, ProCredit Group would have faced added regulatory costs at a time of unprecedented pressure because of the health and economic crisis,a affecting its ability to maintain its loan book in the medium to long term.

Source: Independent Evaluation Group.

Note: a. The ProCredit Group subsidiaries are required by their local regulatory authorities to maintain a minimum amount of mandatory cash reserves with their respective central banks. Under current regulations, a 100 percent risk-weighted assets rule is applied to these mandatory reserves, resulting in capital consumption at the consolidated group level. The Multilateral Investment Guarantee Agency’s guarantees would help reduce the risk weighting of the mandatory reserves from 100 to 0 percent, providing risk-weighted assets consumption relief of up to €302.3 million. This creates additional capital headroom at the consolidated group level, which ProCredit Holding would redeploy to the eight subsidiaries to expand their lending, primarily to small and medium enterprises and in support of climate finance activities.

Bank Group coordination with donors, regional development partners, and other international financial institutions worked well in several cases. Development partner coordination and a clear division of labor toward the COVID-19 early response were strong in Ecuador, Georgia, and Serbia (case study countries). When formal donor coordination frameworks were absent, the World Bank faced more difficulties in field coordination needed to maximize the synergies of donor funding and nonfunding efforts. Such difficulties were registered in cases of Cabo Verde, Nigeria, Pakistan, the Philippines, and Senegal. To be sure, in some of these countries, the World Bank made progress in this area even in the absence of these frameworks, which bodes well for future potential synergies and results. For example, the World Bank, using its convening power, established a development partners’ working group to coordinate response efforts in Pakistan. 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 their responses with the Resilient Institutions for Sustainable Economy Project in support of Pakistan’s efforts to strengthen its macrofiscal framework. In Senegal, the World Bank initiated a joint policy reform matrix with defined roles and efforts for joint donor action to avoid duplication in response to the crisis. Such an arrangement was also observed in Cabo Verde and Ecuador. In Ecuador, the government was in the middle of a shift in its overall development approach (moving from public sector–led growth to private sector–led growth) when the COVID-19 crisis hit. The World Bank and other international financial institutions coordinated well to respond with a large aid package to Ecuador: the World Bank committed $1.4 billion through three DPOs (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 coordinated with 14 donor governments’ development finance institutions to crowd in blended finance support toward small and medium enterprise financing to augment its fast-track COVID-19 facility.

World Bank GPs responsible for the economic response to COVID-19 shared knowledge and collaborated well; they also contributed to the health and social response. IEG’s knowledge flow and collaboration evaluation, conducted before the 2019 realignment of operational staff, documented how challenging it was for the World Bank to work across GPs on many multisector issues (World Bank 2019). Collaboration on lending and global knowledge tasks for the COVID-19 economic response was easier. Interviewees reported flexibility, ease of accessing advice and cross-support, collaborative attitudes, good information sharing, speedy clearances, and close relationships between headquarters and country offices. Operations Policy and Country Services guided the lending response, streamlined some review and approval processes (such as fast-tracking DPF disbursements), and strove to offer updated and accessible guidance and templates. Many of the World Bank’s knowledge networks also mobilized to create and share data and knowledge on issues that cut across the economic response and the health and social response. For example, both the Macroeconomics, Trade, and Investment and the Social Protection and Jobs GPs created central groups, supplemented by regional focal points, to support teams preparing operations. The World Bank (2022d) finds that the Finance, Competitiveness, and Innovation GP, which was one of the GPs at the core of the economic response to the COVID-19 crisis, was a key contributor to early health and social response projects. It also finds that DPFs led by the Macroeconomics, Trade, and Investment GP were critical for the health and social response.

The Bank Group institutions did not sufficiently collaborate to support clients via structured finance in the incipient recovery phase (the second part of the evaluation period). Based on key informant feedback and data on the loosening of restrictions and resumption of GDP growth, several clients were prepared for COVID-19 recovery in 2021. They were keen on exploring structured finance products such as Partial Credit Guarantee facilities, subordinated debt for MSMEs, and innovative products needed to recapitalize firms with lower growth potential in the near term, which could be provided by coordinated World Bank–IFC interventions supported by the World Bank Partial Credit Guarantee team and IFC teams providing credit lines and trade finance. The Bank Group’s COVID-19 response package in Georgia serves as a best practice case (box 4.7).

The development community does not have a playbook for future crises. Authorities in client countries and the World Bank’s country teams indicated the importance of establishing a dedicated central team in the Bank Group that would analyze the international response to the crisis, including in developed countries, and share the learning from this analysis with country teams (IEG interviews). Operations Policy and Country Services management indicated that this support and analysis was done through sector boards, but country teams did not corroborate this impression. As the IEG evaluation (World Bank 2022d) notes, the Organisation for Economic Co-operation and Development emphasizes that pandemic preparedness requires detailed and up-to-date operational plans and processes describing the different roles of staff, procedures, and uses of instruments in responding to crises. It is also important to note that the need is not just to make sectoral advice available but also for the Bank Group to provide an overall strategic response to crises that can be reflected in country strategies and the portfolio.

Box 4.7. World Bank Group’s Approach to COVID-19 Response in Georgia

The World Bank Group provided a high-quality, coordinated COVID-19 response to Georgia. The total financing provided by the World Bank was approximately 2 percent of Georgia’s gross domestic product, which was a substantial part of the 5–7 percent fiscal financing gap that opened up because of the COVID-19 crisis. This helped the Georgian government mount a significant fiscal stimulus of approximately 6.5 percent of gross domestic product to finance social assistance and unemployment programs and support for firms. The World Bank’s Practice Groups responded well to client needs, coordinated by the Country Management Unit, which has maintained excellent relationships with the government of Georgia. Given the International Finance Corporation’s strong presence in Georgia and its experiences in conducting due diligence of financial intermediaries, its advisory inputs to the World Bank package—especially on environmental, social, and governance and corporate governance—were crucial for the Partial Credit Guarantee plan subcomponent of the World Bank’s micro, small, and medium enterprise project.

Engagement among the World Bank, the International Monetary Fund (IMF), and other development partners was well coordinated, resulting in a timely multidonor response to Georgia. The World Bank used the macro framework that the IMF had developed in April 2020 in its development policy financing supplemental loan approved in late 2020. A World Bank US$50 million development policy operation and the subsequent equal supplemental financing was closely coordinated with a parallel US$50 million support from the Asian Infrastructure Investment Bank and another US$180 million from KfW. Evidence from document reviews and interviews suggests that without the World Bank development policy financing support, the Asian Infrastructure Investment Bank and KfW likely would have provided less support that would have arrived later.

The response package was underpinned by an existing trusted relationship between the World Bank and the government of Georgia, the client’s track record of sound macroeconomic management, and the World Bank’s attention to results frameworks. This relationship has supported intensive, real-time knowledge transfer and ongoing policy dialogue, especially during the acute crisis phase (the first part of the evaluation period), when uncertainty was extreme. In that environment, the World Bank proved to be a reliable partner of the government. The real-time, high-quality knowledge transfer was possible because it was based on previous analytical work of the World Bank that identified relevant vulnerabilities (World Bank 2017b, 2018, 2020b), for example, in public health; competitiveness; skills; and micro, small, and medium enterprises, which came into full force during the pandemic. Development policy financing and investment project financing projects, which supported economic recovery (including for micro, small, and medium enterprise), incorporated sound results frameworks and result chains.

Early indications of effectiveness of the response are positive. The World Bank’s macrofiscal support during the time of extreme budgetary need in the acute crisis phase helped the government finance critical budgetary services, including social assistance and unemployment benefits in 2020. The reforms have continued, as documented by the most recent IMF report, which notes the rapid, V-shaped recovery during 2021 and the government’s commitment to the structural reform program supported by the IMF and the World Bank (IMF 2021b).

Source: Independent Evaluation Group.

Monitoring, Safeguards, and Governance

From a reporting and governance perspective (narrowly defined), Bank Group early response–related engagements with the Board were comprehensive. Bank Group management has held frequent and substantive engagements with the Board on the early response since the onset of the global pandemic. Interactions with the Board have covered everything from weekly fact updates to requests for approval of emergency response operations (see full list in appendix D).

Because the Bank Group did not set or update specific volume targets during the early response, we could not assess whether it is likely to monitor or meet its targets during the recovery phase of the pandemic. None of the Bank Group institutions defined a corporate results framework to measure the results of Bank Group support addressing the economic implications of COVID-19. The results frameworks of COVID-19 interventions analyzed in the case studies were not different from the results frameworks of non-COVID-19 operations.

Similarly, Bank Group early response interventions did not identify and measure outcomes specifically related to the economic implications of COVID-19. No significant differences were observed between the outcomes of COVID-19 response interventions and non-COVID-19 interventions during the evaluation period.

The Bank Group streamlined its environmental and social clearances and created templates to facilitate their application in crisis operations. The World Bank supported teams and clients with implementing the Environmental and Social Framework (ESF) approved on October 2018 in the context of COVID-19 operations, including by developing templates and examples to facilitate their application at the onset of the crisis. Environmental and social GPs at the World Bank did indeed create a streamlined, centralized clearance system to expedite clearance for the initial slate of COVID-19 response projects under the purview of the respective directors and specially designated practice managers. This model was then followed by expedited review decentralized to each Region at the level of environmental and social practice managers and regional environmental and social standards advisers. This initial system led to more agile quality review for the first round of COVID-19 projects. IFC introduced a suite of process adjustments for environmental and social appraisals, including streamlined documentation and virtual appraisals for lower-risk projects and reliance on local consulting expertise, when available.

The Bank Group could assess the feasibility of further adapting environmental and social safeguards to respond to clients’ needs during the COVID-19 crisis, especially in contact-intensive sectors. Stakeholders interviewed for the evaluation still perceived environmental and social safeguards as cumbersome in the context of operations addressing the economic implications of the COVID-19 crisis. They mentioned that ESF policies and procedures tend to be heavy on up-front paperwork and light on substantive risk controls during implementation. Waivers sometimes allowed for speedy project approval, but delays ensued during the implementation phase. Some staff perceived Operations Policy and Country Services as overly restrictive in its interpretation of policies, procedures, and Board guidance. Some clients lacked familiarity with ESF requirements and were overwhelmed by multiple ESF outputs required by the World Bank: Environmental and Social Review Summary, Environmental and Social Commitment Plan, Stakeholder Engagement Plan, and detailed documents for high-risk topics, such as medical waste, social inclusion, and nondiscrimination. Recurring changes to project document templates and delays on decisions regarding waivers complicated teams’ and clients’ project preparation. Overlaps in responsibilities between the chief standards adviser and the central and regional environmental and social teams (now addressed via organizational change in 2022) complicated efforts to resolve the identified ESF implementation issues. There may also have been insufficient staff capacity in the country offices to effectively apply the safeguards. The Lao People’s Democratic Republic is an example of a client country where disproportionate safeguards for a time of crisis slowed disbursement (box 4.8). The evaluation team also did not find sufficient evidence that greater flexibility to adjust to the crisis in 2020 was substantively discussed in the EOC and with the Board.

Box 4.8. Slow Disbursement in the Lao People’s Democratic Republic

In the Lao People’s Democratic Republic, the World Bank correctly identified the needs of micro, small, and medium enterprises to access finance during the pandemic. It combined lines of credit, capacity-building support to the Department of Small and Medium Enterprise Promotion via technical assistance, and targeted emergency support to the hospitality and transport sector in a single intervention (October 2020; US$40 million commitment). One challenging but relevant component was setting up a Partial Credit Guarantee Facility to backstop bank lending to micro, small, and medium enterprises. This project involved coordination with five commercial banks: Lao China Bank, Lao Viet, Maruhan Japan Bank, Sacombank, and VietinBank. However, at the time of evaluation (October 2021), only 1.5 percent of the commitment had been disbursed, and the government’s project steering committee had not identified the international consultants on technical assistance support. The slow disbursement was rooted in the need to ensure environmental management safeguard systems that were mandated consistently by all five commercial banks in coordination with the Department of Small and Medium Enterprise Promotion. The client expected financial institution projects to have differentiated treatment of safeguards from real sector or infrastructure projects, especially during a crisis.

Source: Independent Evaluation Group.

The Bank Group maintained yet simplified corporate and fiduciary requirements at the project level at the time of the COVID-19 crisis. Management shortened clearance deadlines, delegated some approvals, and briefly paused gender tagging but maintained most standard corporate and fiduciary priorities and requirements. The corporate priorities of gender, citizen engagement, grievance redress mechanisms, climate co-benefits, and their related processes remained in effect. The fiduciary, procurement, and safeguards risk controls also remained in effect. Management created new written and unwritten subprocesses that tightened controls on DPF, Program-for-Results, vaccine operations, and approvals of level 2 project restructurings. The World Bank had used additional finance at the time of other crises to provide flexible and fast-disbursing support but was limited in its ability to do so for COVID-19 operations because projects approved under the previous safeguards policies were no longer eligible for additional finance with the transition to the new ESF (October 2018). The corporate and fiduciary priorities and requirements exist for valid reasons, including policy commitments the World Bank has made to its shareholders, and some Board members were hesitant to relax compliance and risk controls. However, stakeholders reported that maintaining the procedures and priorities while mounting the emergency response resulted in a delayed, suboptimal response.

Factors Affecting the Quality of the World Bank Group’s Response

Six factors affected the quality of the Bank Group’ early response. They were (i) engaging with global partners outside of the development community, (ii) mobilizing and engaging with local partners and stakeholders, (iii) surge-resourcing plans, (iv) prioritizing staff welfare, (v) underuse of certain Bank Group financing instruments, and (vi) influence on the project implementation agencies.

Engagements with partners outside of the development community helped improve the quality of the response. Given the widespread, compounded risks created by the COVID-19 pandemic, addressing economic implications required embracing and advocating for engagements with new partners outside of the development community. Several clients sought crisis diagnostics and support from the International Labour Organization, the United Nations Conference on Trade and Development, and the Organisation for Economic Co-operation and Development, in addition to official development assistance at the global and country levels. The Bank Group crowded in new global partners to support its policy dialogue with clients (for example, WHO in Senegal).

Mobilizing and engaging local partners and stakeholders helped improve the quality of the early response in some cases. Many country offices could not gather local intelligence because Bank Group staff worked remotely or in hybrid fashion during the evaluation period. Much of the intervention design was informed by headquarters diagnostics, which were relevant but not sufficiently enriched with local data. Cabo Verde was a good reference in this respect because local staff engaged local partners to adjust the project designs in real time. The Bank Group used media reports to react to budget support requirements (for example, in Kenya, a noncase country) and repurpose existing projects (toward safety nets) in some cases (for example, in Nigeria).

Adopting a clear country office surge-resourcing plan during the crisis improved the quality of the response. Beyond intervention designs and surge-financing plans, country offices needed corporate-level commitments to increase and reallocate human resources to respond to the crisis and manage client expectations. Smaller country office teams (such as in Cabo Verde) reacted well to the crisis, repurposing their staff and consultants fairly quickly. Staff and consultants of large country office teams were dedicated to highly complex existing programs, and it was not easy to unwind and repurpose them (as in Nigeria, for example).

Prioritizing staff welfare during crises to build trust and respect improved the quality of the response. Staff in country offices operated in a highly stressful environment, as revealed through key informant interviews and case study–related interviews of country staff. Many informants had family members who had passed away or been hospitalized. Sometimes, staff managed Bank Group work commitments while managing their own COVID-19 symptoms. The Country Management Units of Ecuador and Senegal exhibited best practices in balancing clients’ and staff needs through well-thought-out crisis response plans and a positive work environment. Although the crisis unfolded, and the Country Management Units in countries with relatively weak capacity to handle a pandemic faced unprecedented challenges, prioritizing staff welfare while balancing the expectations of clients and partners was a successful approach. Interviews suggest that such actions increased the level of trust between senior management and staff in country offices and between country office staff and headquarters.

The World Bank’s choice of financing modalities and the use of fast-disbursing, scalable instruments at the onset of the crisis influenced the quality of its response. Key attributes for crisis response instruments are timely design, timely approval processing, timely disbursement, and scale. Instruments with timely processing include CAT DDOs and CERCs. CERCs generated mixed responses from clients and staff who attempted to activate them at times of need. Interviews with key informants indicated that in Serbia, for example, it was difficult to activate CERCs. An existing CAT DDO was disbursed effectively, and (based on early discussions with the implementing agency of the earlier CAT DDO) a follow-up DDO might have been more appropriate than the CERC (which was originally prepared as part of an IPF but could not be activated or repurposed during the acute crisis phase or the incipient recovery phase). DPF was well suited to provide substantial financing, but IPF was slow to disburse, especially when clients with weak capacity ran into procurement and other delays. Repurposing and additional financing of existing projects (investment projects, DPOs, and Program-for-Results) proved to address the clients’ crisis needs quickly and well. As the IEG evaluation (World Bank 2022d) notes, the MPA also proved to be an effective and timely instrument. MPAs allowed the implications of the crisis that a country faced to be addressed in a coordinated, strategic way. MPA document templates were also standardized yet customizable, facilitating project design, including by providing distilled technical knowledge on pandemic response that simplified teams’ work with clients. Giving teams more flexibility to choose financing and implementation modalities (for example, using MPA, CERCs, or DDOs) and target clients (that is, regional or other subnational actors) would have further improved the quality of this instrument to address the economic implications of the COVID-19 crisis.

Government implementation partners that can effectively implement World Bank projects are a condition for success. The capacity of government implementation partners was uneven among the case study countries. One of the implementation partners of the DPO to the Philippine government provides an example. As part of the DPO, the World Bank planned to provide technical assistance to the Ministry of Finance and to the Philippine Guarantee Corporation (PGC), a subsidiary of the Ministry of Finance. The PGC was responsible for the implementation of the project’s pillar aimed at expanding credit guarantees to MSMEs to support business continuity (pillar 2.6). Yet the local commercial banks and the microfinance institutions did not use the PGC support and viewed the PGC as overly bureaucratic and risk averse. Local financial institutions questioned the capacity of the PGC to manage the volume of risk sharing, specifically of commercial banks’ small and medium enterprise portfolios and the larger microfinance institution portfolio. The PGC did not have sufficient staff resources or risk control procedures to respond effectively to significant market demand during the pandemic.

  1. Data from the International Monetary Fund Global Debt Database, International Monetary Fund, Washington, DC, https://www.imf.org/external/datamapper/datasets/GDD.
  2. Several countries received International Monetary Fund support in 2020 without conditionality on structural adjustments, but the World Bank held back disbursements during 2020 on government policy concerns (for example, in Nigeria).