Implications for aid architecture. Trust funds are helping to address bilateral aid limitations and fill operational gaps in traditional multilateral aid mechanisms, including IDA, notably by providing pooled grant financing for specific countries, targeted development issues, and provision of global public goods. They also serve to coordinate governmental and nongovernmental sources of aid, and support programs with new governance arrangements. But their potential added value, their aid effectiveness, and their coherence with other elements of the international aid architecture varies considerably across the many ways they are currently used. It would be useful, therefore, for the international aid community to reflect on the reasons for the gaps in the multilateral system that lead donors to use trust funds, and to assess the comparative advantages of the trust fund and other aid vehicles. Such reflection would help to identify opportunities for reforms in the multilateral aid architecture, including the World Bank, while allowing trust funds to specialize on situations where the multilateral institutions alone cannot be fully effective. The Bank should initiate such an assessment, as well as a discussion among shareholders to explore the comparative advantages of multilateral and trust fund aid modalities before the 2012 Annual Meetings.
Original Response: Partially Agreed. Management believes that it would not be appropriate for the Bank to conduct an assessment of the comparative advantage of multilateral and trust fund aid modalities. However, Management does agree that it is important to better understand the factors driving donors decisions to use multilateral or trust fund modalities, including how they assess their respective comparative advantage. Through its work on IDA, trust funds and FIFs, the Bank regularly engages donors on these complex issues. In the context of IDA 16, the Bank has worked to make the case for multilateralism and in the case of trust funds and FIFs, it is working toward greater selectivity and clarity on the type of gaps these mechanisms are filling, in line with the principle of think twice agreed in Accra. Furthermore, the Bank is actively involved in helping to shape the international agenda on aid effectiveness, including through active participation in the upcoming High Level Forum on Aid Effectiveness to be held in Busan this November.
In response to Management's update, IEG wishes to comment that the spirit of the original recommendation was to identify opportunities for reforms in the broader multilateral aid architecture whereas Management's update speaks more to the Bank's internal management of trust funds and fundraising efforts.
Management continues to recognize both the benefits and challenges that come with working with earmarked contributions from TFs. We continue to work closely with our partners to reduce the risks to aid effectiveness associated with rising numbers of small TFs. The minimum threshold to establish a new World Bank trust fund was raised from $1 million to $2 million in May 2013, and we have encouraged the establishment of multi-donor, multi-year programmatic funds.
The Bank continues to work towards greater oversight and integration of fundraising into the Bank Groups strategy and business planning. In FY15, Management endorsed a Strategic Resource Mobilization Framework and embarked upon the first Strategic Fundraising Plan exercise, which aims to integrate external resource mobilization into the corporate business planning cycle (W process). In this light, the use of earmarked trust funds can be considered more holistically as part of the support the World Bank Group delivers to its clients.
Looking forward, Management will present to the Board in FY16 a paper on External Funds, including Trust Funds and global partnerships, to take stock of all the reforms implemented since 2013, the evolving global landscape of development finance, and share the Banks vision for their contribution to meeting the Banks twin goals.
It is difficult for IEG to assess progress in this area in the absence of a specific, well-defined Bank initiative hence the medium rating. IEG continues to recommend that an assessment be undertaken of the comparative advantages of multilateral and trust fund aid modalities, and that the Bank should play a leading role in initiating such an assessment given that the Bank is the largest multilateral aid organization administering the largest portfolio of trust funds. The proliferation of large thematically focused GRPPs supported by Bank-administered donor trust funds to help countries achieve specific MDGs drew much attention in Busan. Paragraph 23(b) of the Busan outcome document provides a particular opportunity for the Bank to initiate action in this area:
23 (b) We will improve the coherence of our policies on multilateral institutions, global funds and programs. We will make effective use of existing multilateral channels, focusing on those that are performing well. We will work to reduce the proliferation of these channels and will, by the end of 2012, agree on principles and guidelines to guide our joint efforts. As they continue to implement their respective commitments on aid effectiveness, multilateral organizations, global funds and programs will strengthen their participation in co-ordination and mutual accountability mechanisms at the country, regional and global levels.
As per the original response above, Management continues to believe it would not be appropriate for the Bank to conduct an assessment of the comparative advantage of multilateral and trust funded aid modalities. Instead, Management is engaging in discussions with donors on the role of IDA and of trust funds in various forums, i.e. in the context of joint donor trust fund portfolio reviews, IDA16's working group on financial sustainability. To inform these discussions, Management has deepened its analysis of the role of trust funds in the global aid architecture and in the World Bank. This work includes a recently completed CFP working paper on the evolving aid architecture which also served as a background document for a seminar on this topic held at the Busan HLF4 in December 2011. The paper identifies the growing trend toward earmarked ODA either through multi-bilateral aid (i.e. bilateral aid channeled through the multilateral system) or through new thematically-focused multilateral entities in the context of rising ODA in the past decade. The growth of the Bank trust fund portfolio reflects these trends and the preference of donors to use the Bank as an effective delivery platform. Further analysis reflected in recent Board documents, including the upcoming Medium Term Business and Finance Paper FY13-FY15, shows that for the most part trust funds complement the Bank's work in critical areas such as fragile states, disaster response, global public goods, civil society outreach and innovation. Issues of fragmentation and selectivity are being addressed in the context of recently launched initiatives (i.e. umbrella facilities, FIF and partnerships frameworks).
It is difficult for IEG to assess progress in this area in the absence of a specific, well-defined Bank initiative.IEG continues to recommend that an assessment be undertaken of the comparative advantages of multilateral and trust fund aid modalities, and that the Bank should play a leading role in initiating such an assessment given that the Bank is the largest multilateral aid organization administering the largest portfolio of trust funds. The proliferation of large thematically focused GRPPs supported by Bank-administered donor trust funds to help countries achieve specific MDGs drew much attention in Busan in December 2011. Paragraph 23(b) of the Busan outcome document provides a particular opportunity for the Bank to initiate action in this area:
23 (b) We will improve the coherence of our policies on multilateral institutions, global funds and programmes. We will make effective use of existing multilateral channels, focusing on those that are performing well. We will work to reduce the proliferation of these channels and will, by the end of 2012, agree on principles and guidelines to guide our joint efforts. As they continue to implement their respective commitments on aid effectiveness, multilateral organisations, global funds and programmes will strengthen their participation in co-ordination and mutual accountability mechanisms at the country, regional and global levels.
This recommendation by IEGwas partially agreed by Management in 2011. Since then, Management has significantly scaled up its outreach totrust fund donors and increased its analysis of trust fund portfolios. Dedicated Trust Fund Donor Portfolio Reviews have been rolled out for all major TF donors between 2011 and 2013, leading to in-depth discussions with each donor about the comparative advantages of multilateral aid and trust funds, and the associated trade-offs vs. bilateral aid channels and also core multilateral aid. One benefit has been to improve understanding of the factors driving donors decisions to use various development finance modalities, including how they assess their respective comparative advantages. Through its work on IDA, trust funds and FIFs, the Bank regularly engages donors on these complex issues. In the context of IDA 17, the Bank is presenting thecase for multilateralism and in the case of trust funds and FIFs, it is working toward greater selectivity and clarity on the type of gaps these mechanisms are filling. Going forward, the Bank will consider, in the context of "dynamic selectivity,"how these financing instruments will work to deliver the Bank Group's strategic priorities of poverty reduction and shared growth, with sustainability.
IEG appreciates Management's efforts on this, including those carried out via theGlobal Partnership for Development Effectiveness.
After Busan, the effectiveness of multi-bilateral aid was transferred to the agenda of the Global Partnership for Development Effectiveness. The World Bank, together with the OECD and several bilateral donors, organized a session on better management of trust funds and partnership. Several recommendations came out of this session:
- a call to international organizations to ensure multi-annual integrated budgeting processes that provide transparency on internal and external resources
- a call to bilateral, sovereign development partners provide funding to MOs in ways that maximise impact and mitigate risks associated with earmarked funding. To this end they
should continue to support building an evidence base on the costs and opportunities associated with different practices relating to earmarked funding and agree on and apply principles for the effective management of earmarked funding. As suggested by emerging findings, these practices may include:
o Avoiding ad hoc formal and informal monitoring and reporting
requests;
o Reinforcing intra- and inter-ministerial/agency coherence (by
strengthening the links between the top management that endorses reforms on earmarked resources and the middle-level management that makes concrete decisions on earmarked funding);
It is expected that the current co-chairs of the Global Partnership will take these recommendations forward to the next meeting. In the meantime, the Bank will continue to work with OECD, several academic institutions and colleague MDBs to ensure better empirical evidence on the drivers of multi-bilateral aid.