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Topic:Finance, Competitiveness & Innovation
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World Bank Group Support for Domestic Revenue Mobilization (Approach Paper)

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Effective domestic revenue mobilization (DRM) is essential for developing countries’ abilities to finance their development goals in a sustainable and equitable manner. DRM—the generation of government revenues from domestic activities (World Bank and IMF 2015)—is relevant to at least 2 of the 17 Sustainable Development Goals (SDGs). This evaluation focuses on the World Bank Group’s support to Show MoreEffective domestic revenue mobilization (DRM) is essential for developing countries’ abilities to finance their development goals in a sustainable and equitable manner. DRM—the generation of government revenues from domestic activities (World Bank and IMF 2015)—is relevant to at least 2 of the 17 Sustainable Development Goals (SDGs). This evaluation focuses on the World Bank Group’s support to its clients to improve central government DRM, which includes revenue from tax (VAT, direct taxes, excises and customs) and nontax collections (including royalties from extractives). Recently, DRM has faced challenges aggravated by the ongoing coronavirus (COVID-19) pandemic and the attendant collapse of economic activity in many countries. The pandemic is expected to affect many aspects of DRM, including tax payments and tax compliance. This evaluation aims to assess the relevance, effectiveness, and coherence of Bank Group–supported strategies and interventions over FY16–19 to help clients improve DRM, as well as assess the extent to which the World Bank identified the distributional implications of its support to DRM in country interventions.

Borrow wisely, spend wisely: supporting public financial and debt management in low-income countries

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Sound management of public finance is critical to fiscal discipline and the efficient and effective use of scarce public resources. Weaknesses in public financial management and debt management (PFDM) can have wide-ranging implications for development, including by driving a wedge between public policy and its implementation. A new report from IEG assesses the impact of efforts to promote sound Show MoreSound management of public finance is critical to fiscal discipline and the efficient and effective use of scarce public resources. Weaknesses in public financial management and debt management (PFDM) can have wide-ranging implications for development, including by driving a wedge between public policy and its implementation. A new report from IEG assesses the impact of efforts to promote sound PFDM, which is now more important than ever in the wake of the COVID-19 pandemic, and as an increasing number of low-income countries (LICs) find themselves again at high risk of, or in, debt distress. As governments rapidly shift policy and spending in response to the pandemic, robust, responsive, and flexible PFDM systems are crucial for: using scarce resources efficiently to ensure value for money and prevent the unauthorized use of funds, accelerating budget execution and the release of critical funds to deliver essential and emergency public services, and managing the costs and risks associated with the inevitable short-term increase in indebtedness. Debt Crisis, Deja vu Even before the onset of the pandemic, a resurgence in debt stress among low-income countries (LICs) was evident, including among past recipients of large-scale debt relief. Since 2013, the number of countries eligible for financing from IDA, the World Bank Group’s fund for the world’s poorest countries,  at high risk of, or in, debt distress more than doubled (from 13 to 34) and the average debt-to-GDP ratio increased from 40% to 60% . Between 2013 and 2018, median interest payments among LICs rose 128%. And this all occurred as the Bank and others were scaling up support to debt management. Public financial management  and debt management are often looked at separately, even though the importance of addressing them together was clearly recognized in the 19th IDA replenishment: “the first challenge is to assist IDA countries to ensure that the benefits [of borrowed resources] exceed the costs of servicing their debt. IDA and other partners can help by supporting initiatives that enhance capacity in areas such as public finance management, public investment management … and debt management” (p 19). Complementarity between the pillars of PFDM is at the heart of IEG’s new evaluation, World Bank Support for Public Financial and Debt Management in IDA-eligible Countries. It focuses on the decade following the 2008 global financial crisis, during which many LICs increased non-concessional and shorter-term borrowing, much of it sourced bilaterally and often on relatively opaque terms. Many LICs were also impacted by low commodity prices and the realization of large contingent liabilities, including those associated with state-owned enterprises. The period was also characterized by increasing attention to “growth enhancing” public spending and investment to close the infrastructure gap and meet the Millennium Development Goals and, subsequently, the Sustainable Development Goals.   World Bank PFDM Support, Impactful but Uncoordinated The evaluation found that the Bank’s support to IDA-eligible countries to strengthen PFDM led to positive, albeit limited, results. It contributed to the rollout of financial management information systems to help track and manage public expenditures but was less successful in encouraging the extension of systems to include high-value transactions. There was also an increase in the number of IDA-eligible countries that met minimum standards for several dimensions of debt management capacity, including being able to prepare Medium-Term Debt Strategies and debt sustainability analyses. But, for many of the most vulnerable countries, debt management support was not systematically accompanied by, or coordinated with, efforts to improve public financial management, despite widely recognized synergies between borrowing, fiscal transparency, and the quality of public spending and investment. This is problematic, as many LICs were borrowing extensively from private markets and bilateral donors to finance investment projects, and thus could have benefited from improvements in institutional structures and systems to improve the quality and efficiency of public spending. As a result, opportunities to increase the growth-enhancing impact of debt-financed public investment have likely been missed, with potentially negative consequences for debt sustainability. Public investment management (PIM) diagnostics have been undertaken by the Bank for less than half of IDA-eligible countries, with demand concentrated among higher-income LICs. Of the 32 IDA-eligible countries at high risk of, or in, debt distress in FY18, only 10 received PIM support over the previous decade.  With the growing importance of improving the impact of scarce public resources in the face of rising debt levels, a more deliberate and coordinated approach to PFDM capacity building is warranted if the Bank is to achieve the IDA 19 objective of helping client countries ensure that debt burdens do not overwhelm their ability to reduce poverty or provide essential government functions. The decentralized and uncoordinated way PFDM diagnostics have been undertaken and used in the Bank suggests that there is scope to realize further synergies among PFDM pillars. A Way Forward The evaluation recommends that Bank staff maintain a clear and up-to-date picture of PFDM strengths and weaknesses for each IDA-eligible country, drawing on existing assessments of the main dimensions of PFDM. This has already been addressed within pillars of PFDM, but synergies across pillars remain underexploited. It also recommends that the Bank more systematically support PFDM in IDA-eligible countries with better sequenced and complementary lending and nonlending support. Implementation of the new Sustainable Development Finance Policy and the associated identification of performance and policy actions provide an early opportunity to take a more holistic view of PFDM at the country level. In the wake of the economic shock associated with the pandemic, efforts to maintain a broader focus on both borrowing and spending will only increase in importance.   Read the Evaluation: World Bank Support for Public Financial and Debt Management in IDA-eligible Countries Image credit: Shutterstock/AntartStock

Doing Business Indicators and Country Reforms (Approach Paper)

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Doing Business is recognized as highly influential in business regulatory reform worldwide, and it is the most used set of indicators on business regulation. Its indicators are widely used and analyzed in the academic literature. They are a component of many other influential indexes, including the World Economic Forum’s Global Competitiveness Index, the Heritage Foundation Index of Economic Show MoreDoing Business is recognized as highly influential in business regulatory reform worldwide, and it is the most used set of indicators on business regulation. Its indicators are widely used and analyzed in the academic literature. They are a component of many other influential indexes, including the World Economic Forum’s Global Competitiveness Index, the Heritage Foundation Index of Economic Freedom, and the Fraser Institute Economic Freedom Index. It is cited by many countries in their reform plans and in many World Bank Group project documents and country strategies. Although popular, the DB indicators have also been the subject of controversy regarding their methodology, accuracy, and potential biases and the way they are used in shaping and assessing country policy reforms. The Bank Group and the Independent Evaluation Group (IEG) have been called on several times to review DB, largely to respond to such criticisms. In this report, IEG has committed to examine the relevance and effectiveness of the use of DB indicators in guiding client country business environment reforms—both those supported by the Bank Group and those undertaken without its support. This includes an initial stocktaking of literature and existing evaluative evidence to inform an Issues Paper, which will be followed by a Focused Evaluation to assess the DB’s strategic relevance to countries’ reform priorities and to the Bank Group’s strategic agenda. This request came just before the late-August 2020 suspension of the DB report to probe alleged irregularities in the underlying data.

Scaling up private capital mobilization for development: Lessons from World Bank Group experience

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Scaling up private capital mobilization for development: Lessons from World Bank Group experience
Meeting the Sustainable Development Goals (SDGs) requires raising trillions of dollars on an annual basis. Public resources and Official Development Assistance (ADA) will not be enough to finance the SDG agenda. Now there is the additional challenge of finding the resources to cope with the multiple consequences of the Covid-19 pandemic. Mobilizing private capital has a critical role to play in Show MoreMeeting the Sustainable Development Goals (SDGs) requires raising trillions of dollars on an annual basis. Public resources and Official Development Assistance (ADA) will not be enough to finance the SDG agenda. Now there is the additional challenge of finding the resources to cope with the multiple consequences of the Covid-19 pandemic. Mobilizing private capital has a critical role to play in filling the investment gap.   In 2015, Multilateral Development Banks (MDBs) committed to adopting a financing framework capable of unlocking, leveraging, and catalyzing more public and private financial flows. A framework where financing from private sources, including capital markets, institutional investors and businesses, has become paramount to mobilize the trillions in investments needed.  In 2017, the World Bank Group (WBG) adopted a definition of private capital mobilization (PCM), jointly agreed with other MDBs and Development Finance Institutions (DFIs). The WBG’s Independent Evaluation Group (IEG) released its first systematic assessment on how relevant and effective the Bank Group has been at channeling private capital for development, the factors that have driven results, and opportunities for the future. IEG’s evaluation finds that the WBG has deployed efforts across its institutions (IBRD, IFC and MIGA) to mobilize private capital either through project level co-financing and/or through pioneering mobilization instruments and platforms. Bank Group PCM approaches have proven to be relevant and have delivered results. In fact, the WBG remains one of the largest contributors to PCM, with about $32 billion mobilized in low- and middle-income countries in 2018.   What factors have been driving results? Several WBG instruments and platforms have been effective in achieving development objectives through PCM. For example, World Bank Guarantees have achieved positive outcomes by reducing risks and improving projects’ bankability at the commitment stage. Creating the right conditions to attract private investments has led to increased financing for key infrastructure and services, benefitting people around the world when these projects reach maturity. IFC syndicated loans have increased client firms’ access to finance and debt, and bond mobilization platforms have been effective in meeting client and investor expectations. MIGA has also been successful and has positioned itself well among MDBs in addressing PCM thanks to its new products (e.g. Credit enhancement) and the share of its exposure that gets reinsured allowing MIGA to offer more guarantees. These new products and guarantees have successfully mobilized private investments for projects ranging from power generation in Sub-Saharan Africa to capital optimization projects in Latin America and the Caribbean. Bank Group client countries have large untapped potential to crowd in private capital. IEG modeled estimates suggest most Bank Group client countries are attracting only 50-80 percent as much private capital as they could. Unlocking this potential will be especially important to fund the recovery from the pandemic and get back on track to the SDGs. Evidence shows that projects with domestic investor participation, MDB involvement, and World Bank–IFC–MIGA collaboration have better PCM project outcomes. Domestic investors boost project success by engaging actively in the design and implementation stages and by bringing knowledge of the local market and regulations. Projects with domestic investor participation had greater success (80 percent) than those with overseas investors only (60 percent). When other MDB’s are involved, more resources become available and there are shared environmental, social, and governance compliance requirements and monitoring systems to ensure greater quality of outputs and outcomes. Evidence from energy sector projects indicates that concomitant World Bank, IFC, and MIGA interventions have a positive effect on PCM outcomes. These joint interventions involve either working sequentially as a project’s de-risking needs and financing needs evolve.   IFC and MIGA PCM approaches have created a demonstration effect, attracting repeat clients and increasing PCM levels. However, it is not easy to sustain private investment flows in the long term. This demonstration effect of IFC and MIGA PCM approaches happens when IFC or MIGA support the expansion of an ongoing project or the involvement of an existing client in a new project. Investors’ repeat engagement indicates that they trust the Bank Group’s PCM approaches and believe that projects developed through the Bank Group will be sustainable. It takes time and sustained investment, however, to generate sufficient levels of PCM to trigger a demonstrable increase in countries’ overall private capital flows. It is also essential for governments and the Bank Group to continue to support business environment reforms post-PCM and to address constraints that may limit private investments in the long term. What opportunities lie ahead for PCM in the future? Bank Group client countries have large untapped potential to crowd in private capital. IEG modeled estimates suggest most Bank Group client countries are attracting only 50-80 percent as much private capital as they could. Unlocking this potential will be especially important to fund the recovery from the pandemic and get back on track to the SDGs. Both traditional Bank Group PCM solutions (for example, World Bank and Multilateral Investment Guarantee Agency guarantees, trade finance, and short-term liquidity facilities) and countercyclical approaches (for example, the Distressed Assets Recovery Program) can continue to play important roles in mobilizing private capital in light of the ongoing pandemic. The Bank Group has the potential to help create a more attractive environment for private capital by supporting public policy changes, addressing the lack of a pipeline of bankable projects, and increasing collaboration with other MDBs and DFIs on PCM efforts. This requires the Bank Group to expand existing PCM platforms and approaches, to support policy reforms and disaster risk financing and to continue to innovate and develop new products aligned with the needs of new investor groups and partners.    Read the Evaluation: The World Bank Group’s Approach to the Mobilization of Private Capital for Development Image credit: adapted from VectorMine/shutterstock

The World Bank Group’s Approach to the Mobilization of Private Capital for Development

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The World Bank Group’s Approach to the Mobilization of Private Capital for Development
This evaluation offers IEG’s first systematic assessment of the Bank Group’s approaches with Private Capital Mobilization (PCM) and the achievements of development outcomes in engaging with investors and project sponsors. This evaluation offers IEG’s first systematic assessment of the Bank Group’s approaches with Private Capital Mobilization (PCM) and the achievements of development outcomes in engaging with investors and project sponsors.

Liberia: Integrated Public Financial Management Reform Project (PPAR)

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The project development objective of the Liberia Integrated Public Financial Management Reform Project (IPFMRP) was to improve the budget coverage, fiscal policy management, financial control, and oversight of government finances of the recipient. The project was restructured in 2016, but the project development objective remained unchanged. Four subobjectives are assessed for this review: (i) Show MoreThe project development objective of the Liberia Integrated Public Financial Management Reform Project (IPFMRP) was to improve the budget coverage, fiscal policy management, financial control, and oversight of government finances of the recipient. The project was restructured in 2016, but the project development objective remained unchanged. Four subobjectives are assessed for this review: (i) improve budget coverage, (ii) improve fiscal policy management, (iii) improve financial control, and (iv) improve oversight of government finances. Ratings for the Integrated Public Financial Management Reform Project are as follows: Outcome was moderately unsatisfactory, Overall efficacy is modest, Risk to development outcome was substantial, Bank performance is moderately unsatisfactory, and Quality of monitoring and evaluation is negligible. Lessons from this project include: (i) Effective support for enhancing revenue mobilization and administration can benefit from combining technical assistance with logistical support. (ii) The use of PEFA composite indicators as results indicators is often not advisable. (iii) Superficial reviews and overoptimistic ratings in ISRs can negatively affect project implementation and outcomes. (iv) Effective and sustainable PFM reforms require continuous engagement to overcome political challenges.

State Your Business!

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An Evaluation of World Bank Group Support to the Reform of State-Owned Enterprises, FY08-18
This is IEG’s first systematic assessment of World Bank Group’s support for the reform of State-Owned Enterprises (SOEs), looking at what works and the factors of success. It parallels Bank Group efforts to provide more integrated support to SOE reform in client countries and to empower staff with new tools. This is IEG’s first systematic assessment of World Bank Group’s support for the reform of State-Owned Enterprises (SOEs), looking at what works and the factors of success. It parallels Bank Group efforts to provide more integrated support to SOE reform in client countries and to empower staff with new tools.

Ukraine Country Program Evaluation (Approach Paper)

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Ukraine has significant economic potential, but over the past decade economic growth has been slow and highly volatile. A lower-middle-income country with a population of 44 million and a per-capita gross national income of $2,660 in 2018, Ukraine is endowed with a well-educated and entrepreneurial population, vast areas of fertile land, other natural resources, and a geographic location at the Show MoreUkraine has significant economic potential, but over the past decade economic growth has been slow and highly volatile. A lower-middle-income country with a population of 44 million and a per-capita gross national income of $2,660 in 2018, Ukraine is endowed with a well-educated and entrepreneurial population, vast areas of fertile land, other natural resources, and a geographic location at the crossroads of Europe and Asia.2 Ukraine aspires to join the European Union (EU), but after decades of stagnation, income per capita remains far below that of its neighbors and comparators. The primary goal of this Country Program Evaluation (CPE) is to assess the development effectiveness of World Bank Group support to Ukraine between fiscal years (FY)12 and FY20. A key focus of the CPE will be to examine how well the Bank Group adapted its support to Ukraine’s changing circumstances over the evaluation period and helped build resilience in the face of major crises. The CPE is also expected to provide strategic insights for the preparation of the next Ukraine Country Partnership Framework (CPF), scheduled for FY22.

Tajikistan: Energy Loss Reduction Project (PPAR)

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This project was approved on June 30, 2005, for a cost of $30.0 million, including an International Development Association credit of $17.9 million. The project cost increased to $48 million after restructuring and additional finance of $18.0 million. The project closed on December 31, 2014, two and a half years later than the originally scheduled date of June 30, 2012. The original objective was Show MoreThis project was approved on June 30, 2005, for a cost of $30.0 million, including an International Development Association credit of $17.9 million. The project cost increased to $48 million after restructuring and additional finance of $18.0 million. The project closed on December 31, 2014, two and a half years later than the originally scheduled date of June 30, 2012. The original objective was, to assist [Tajikistan] in reducing commercial losses in the electricity and gas systems, and to lay the foundation for the improvement of the financial viability of the electricity and gas utilities in a socially responsible manner. In 2012, the project objective was expanded to include, to assist in the viability assessment of the proposed Rogun HEP [hydroelectric project] in Tajikistan. Ratings for the Energy Loss Reduction Project are as follows: Outcome was moderately unsatisfactory, Risk to development outcome was high, Bank performance was unsatisfactory, and Borrower performance was moderately unsatisfactory. Lessons from this project include: (i) The development effectiveness of the World Bank’s continuous sectorwide engagement in a country can be diminished significantly if the risk analysis at project appraisal is not comprehensive and candid and if prompt course corrections are not made during implementation when a major risk is realized. (ii) The World Bank should proactively ensure that a project component that is crucial to achieving the project development objective and is funded through parallel financing arrangements is designed and implemented in an effective and complementary manner. (iii) The World Bank’s convening capacity can contribute to resolving politically complex and technically demanding development issues that cut across national boundaries, by creating a transparent and inclusive consultative process, and marshaling globally recognized expertise.

Rwanda CLR Review FY14-20

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In summary, under the Rwanda CPS for FY14-FY20, the World Bank Group supported the government to address problems in areas and sectors that could help reduce poverty and improve shared prosperity. The CLR’s most relevant lessons are summarized as follows. First, government discipline and leadership enhance the effectiveness of official development assistance and the country’s ability to progress Show MoreIn summary, under the Rwanda CPS for FY14-FY20, the World Bank Group supported the government to address problems in areas and sectors that could help reduce poverty and improve shared prosperity. The CLR’s most relevant lessons are summarized as follows. First, government discipline and leadership enhance the effectiveness of official development assistance and the country’s ability to progress. Second, more qualified people working on financial management, procurement and safeguards is needed to enhance the impact of projects and program. Third, plans for agricultural modernization require considering interactions between the rural and urban labor markets to ensure migrating rural workers have gainful urban employment. Fourth, generating knowledge through ASA can help identify binding constraints and design policy reforms in a timely manner. IEG adds the following lesson: Poor results framework make it difficult to learn from a program’s experience, attribute results to the program and assess its achievements, and build knowledge that can guide future program design and implementation. To assess programs, build knowledge and guide future actions, the WBG needs to ensure CPF Results Frameworks have: (a) a clear and coherent results chain and (b) indicators that can be measured, are useful for assessing the achievement of objectives and are linked to the program’s interventions.. In Rwanda, the CPS results framework has shortcomings that makes it difficult to measure the achievement of some objectives, build knowledge and guide future WBG programs.