Management of the World Bank Group welcomes the report by Independent Evaluation Group (IEG) entitled Transitioning to a Circular Economy: An Evaluation of the World Bank Group’s Support for Municipal Solid Waste Management (2010–20). Lessons learned from this evaluation are relevant to current urban environmental challenges and will inform the Bank Group’s continuing support to client countries in the field of solid waste management and the circular economy.

World Bank Management Response

Overall

Management welcomes IEG’s finding that the Bank Group is recognized as having the “largest reach, greatest experience, and most diversified solid waste management portfolio among any of the multilateral lending or developmental institutions” (29). Management appreciates the conclusion that World Bank–supported Municipal Solid Waste Management (MSWM) infrastructure and service delivery were broadly effective. Management will strengthen ongoing efforts more consistently to cover elements essential for moving toward integrated waste management, keeping a line of sight to long-term development outcomes, recognizing the opportunities for improvement summarized in the recommendations in the report.

Bank Group Management is committed to pursuing integrated waste management and circular economy approaches to help countries and cities advance climate, development and broader sustainability goals, as stated in its Climate Change Action Plan for 2021 through 2025 and other Bank Group policy and technical reports. The MSWM sector has undergone dramatic transformation since FY00, with the emergence of the circular economy concept in the mid-2010s and the much stronger emphasis on resource utilization under the waste hierarchy principle. Yet, as much as 40 percent of the portfolio evaluated by IEG in its report was conceptualized in the early 2000s, with early MSWM projects designed with a strong emphasis on the quality of basic services and improved environmental conditions at the waste disposal stage. Current policy work, publications, sector analytics, and projects supported by the Bank Group are developed within the framework of the waste hierarchy.

Outcome Orientation

Management concurs with the observation that the most pressing needs in the sector are in low-income countries (LICs) and lower-middle-income countries (LMICs), and stresses the importance of helping these countries build the necessary preconditions for long-term outcomes of effective waste management. LICs and LMICs face severe fiscal constraints, unlike upper-middle-income countries (UMICs). Given different socioeconomic conditions and budget envelopes, UMICs and LICs or LMICs have differing immediate priorities for the sector and have differing abilities to transition toward a circular economy. There are also important cost ramifications, given the limited budget envelop in LICs and LMICs. The immediate issue faced by many LICs is the incomplete waste collection service. There is a need to first establish a municipal waste collection system. This needs prioritization, along with longer-term efforts to advance upward in the waste hierarchy toward the circular economy.1 Management will continue to address this comprehensive and sequential approach to long-term outcomes of MSWM in Systematic Country Diagnostics and Country Partnership Frameworks for both LICs and LMICs. Following the findings of the report, management will ensure that long-term and well-sequenced engagements that include support for key policy reforms continue to be the norm. Relevant experiences for further learning include World Bank engagements in Colombia, Liberia, Morocco, and West Bank and Gaza.2

Management agrees that the benefits of improved waste management need to be clearly flagged in project documents and analytics, whenever relevant, not only to demonstrate the high potential of the sector but also to strengthen outcome orientation. Benefits related to the global public good, notably reductions in greenhouse gas (GHG) emissions, are already captured and reported through corporate GHG accounting and climate co-benefits accounting. Management now intends to articulate more clearly in World Bank documentation, as relevant, the benefits related to country-level high-level outcomes, such as local economic development, health, and social impact.

Financial Sustainability

Management notes that financial sustainability through user fees, where needed, in combination with subsidies and budget funding, has become an important area of focus for Bank Group–supported operations. Management will consider the findings regarding full-cost recovery in accordance with country circumstances. As part of efforts toward financial sustainability, World Bank operations also support the development of enabling conditions for public–private partnerships where relevant, whether it concerns management capacity, oversight mechanisms, or clarity of roles and procedures. Full-cost recovery remains the exception globally. The more common practice is to finance the sector through a combination of fees and the municipal budget. Full-cost recovery is, in fact, not fully achieved in many high-income countries. Although the World Bank aims for cost recovery and user fees, subsidies and budget funding are still widely used and remain very common in countries with well-performing MSWM systems. Although public–private partnerships could similarly lead to excellent benefits, the real challenge is to build management capacity among local governments, sustainable finances, and strong oversight mechanisms. These are key to both privately and publicly run operations. It is important to note that there are good examples of publicly run operations in high-income countries.

Recommendations

Management agrees with the first recommendation in the report to give clear priority to the adoption and implementation of waste hierarchy practices, in line with client needs and capabilities for MSWM. Management will ensure that prioritization of waste hierarchy continues to be integrated into project design, and advisory services and analytics supported by the Bank Group. Management emphasizes that since LICs, LMICs, and UMICs have different socioeconomic conditions, budgets, capacity constraints, and immediate and competing priorities, the transition and adoption of waste hierarchy practices will vary across countries, as recognized by the report. Tailored approaches will be required to ensure long-term consistency with the overall waste hierarchy framework and its principles. Management will work to ensure that this is acknowledged, as relevant, in individual country-level advisory services and analytics and project documents.

Management agrees with the second recommendation to identify constraints on demand and investments in LICs and leverage external partnerships for context-specific MSWM solutions. Analytical work will be carried out to this end, which will also outline opportunities to increase the support for solid waste management in LICs. Although LICs and LMICs have multiple competing development priorities, the Bank Group will endeavor, in collaboration with International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) as well as external partners, to promote support that spans analytics, policy action and investment. For example, the Bank Group has been increasing its support for MSWM in several countries, including Cambodia, India, Indonesia, Lao People’s Democratic Republic, Senegal, and the Philippines in the areas of policy and regulatory environment, private sector participation, increasing awareness and behavior change, support to primary collection, and the integration of waste pickers.3

Management broadly agrees with the third recommendation as well, provided it is understood within current management efforts to strengthen the strategic selectivity of its convening efforts, in line with previous IEG recommendations. The World Bank already collaborates with development partners, international institutions, and research think tanks, including the International Solid Waste Association, the Covenant of Mayors and C40, bilateral aid agencies, the European Commission, and the Japan Institute for Global Environmental Strategies. Management will continue to engage at the global level and provide leadership in this important sector through, for example, global analytics and technical deep dives and engagement in international events and partnerships. It is important to recognize that the World Bank will need to balance the multiple mandates of climate, resilience, and marine pollution. This selectivity will be in line with previous IEG recommendations linked to the report by IEG The World’s Bank: An Evaluation of the World Bank Group’s Global Convening.

International Finance Corporation Management Comments

IFC management appreciates the evaluation work delivered by IEG. The topic is timely as the Corporation is focusing on supporting clients in the sustainability agenda where transition to circular waste management solutions is a critical component. A circular economy deep dive is currently being undertaken to identify ways by which available resources can be used more efficiently and support progress in the municipal waste management sector. IFC will incorporate the knowledge and lessons provided in the report in the design and implementation of its advisory and investment plans in the sector.

Responses to Recommendations

Recommendation 1: IFC management agrees with the recommendation. IFC client countries need support from the developmental community, including the Bank Group, in transitioning from their current MSWM situation to better align with waste hierarchy principles. It is important to highlight that the transition paths will vary across geographies; support from the Bank Group, while ensuring long-term consistency with waste hierarchy principles, will need to improve waste management systems in the local context of (i) willingness and ability to pay; (ii) institutional capacity; and (iii) fit within multiple urgent priorities of client governments. As the report highlights, progress in the above agenda will be dependent on political economy challenges.

As noted in the report, IFC advisory engagement and support for private sector investment is more likely where the MSWM policy and regulatory environment is adequately developed. Appendix B of the report highlights the advisory engagements in the sector aimed at supporting the development of an enabling framework for private participation through advisory services—successfully in the case of Belgrade but with mixed results in other cases. In addition, IFC has used direct relationships with cities as part of its Cities Business Model to support decision makers with advice related to the waste sector in Izmir, Bogota, and Buenos Aires. These facts highlight IFC’s keen interest and commitment to engage in the sector to help develop sustainable private sector participation. However, this is extremely resource intensive, and the probability of success is often uncertain because of changes in the political landscape.

Furthermore, while collaboration among Bank Group institutions has been active, there have been few joint projects so far due to the reasons outlined as well as differing focus areas and opportunities of the World Bank, IFC, and MIGA. However, where the opportunity has presented itself, for example with respect to the Belgrade sanitary landfill and waste to energy project, IFC and MIGA have worked together to deliver private sector solutions to client governments. In addition, the report does recognize multiple instances of ongoing collaboration between the World Bank and IFC in the MSWM sector, which are expected to show results going forward.

Recommendation 2: IFC management agrees with this recommendation. It is worth noting the observation made in the report regarding the need for elements like reasonable legal and regulatory frameworks, reasonable creditworthiness of offtakers, and additional factors such as willingness and ability to pay for waste management services instead of other infrastructure services such as power, water and wastewater, and transport. Because these elements are less developed in LICs, IFC’s ability to engage is diminished.

Although challenges in private participation in the solid waste sector remain high even in UMICs and LMICs, the enabling framework has improved gradually over the past decade, where the focus of IFC’s efforts has been as a result. However, as past and ongoing efforts in Uganda, West Bank and Gaza, and Guinea demonstrate, IFC engages in LICs when strong political impetus provides an opportunity to do so. Under the IFC 3.0 strategy, mapping efforts to find opportunities for private sector engagement in the waste sector are underway in Sub-Saharan Africa and early engagement has been initiated in the Pacific Islands.

IFC management recognizes the potential for using hybrid financing models, such as the Clean Ganga Project of the World Bank, where public sector funds are being leveraged to introduce a private sector–led sewerage treatment program in low-income areas of India. Such programs represent a potential opportunity to be explored in LICs where political interest in attracting private sector investment to address waste sector is a challenge.

Recommendation 3: IFC management is broadly supportive of this recommendation. IFC has regular engagements with other development partners to exchange ideas, share market knowledge, and enable co-financing opportunities to support clients. IFC management agrees with the observation that most development partners look to IFC to bring opportunities and ideas.

The report indicates that the Bank Group has yet to sufficiently integrate waste hierarchy and circular economy principles into its support to clients. It is critical to recognize that removing some key constraints to reaching a circular economy in developing countries often necessitates time and multiple interventions. Although sound policies tailored to the local context are important, the right mind-set and buy-in from constituents is also critical for developing a functioning circular economy. As evidenced in some developed countries, this takes time, even with significant resources deployed. IFC’s investment portfolios may not explicitly focus on waste hierarchy and circular economy principles in initial interventions, because certain foundations, which require time, including behavioral change and adequate capacity development, need to be established to enable this transition.

Multilateral Investment Guarantee Agency Management Comments

MIGA welcomes IEG’s report Transitioning to a Circular Economy: An Evaluation of the World Bank Group’s Support for Municipal Solid Waste Management (MSWM).

Recommendation 1: MIGA agrees with this recommendation for further collaboration across the Bank Group. MIGA notes IEG’s assessment that MSWM is a very challenging sector for MIGA, even with proactive efforts to originate projects in partnership with international sponsors. We also appreciate IEG’s recognition of the Belgrade sanitary landfill and waste-to-energy project as an example of a successful IFC and MIGA collaboration. MIGA understands that this project exemplifies the tenacity of IFC and MIGA in a very difficult sector for multilateral private sector operations. We are also keen to work closely with the World Bank and IFC to support the upstream work to help governments remove constraints for further MSWM operations.

Recommendation 2: MIGA also agrees with this recommendation, and we consider that additional support secured to help unlock the development of bankable projects for MSWM solutions in low-income countries is highly desirable, although the persistence of other barriers (for example, the regulatory context) could continue to make such engagements challenging.

Recommendation 3: MIGA broadly agrees with this recommendation. The evaluation report notes MIGA’s engagement in MSWM is constrained by a lack of bankable projects seeking guarantees. The leadership of the World Bank and IFC could help ease some of the challenges over time, including the capacity limitations of municipalities as counterparts.