Management of the World Bank Group thanks the Independent Evaluation Group (IEG) for the report The World Bank Group’s 2018 Capital Increase Package: An Independent Validation of Implementation and Results. The 2018 capital increase package (CIP) helped significantly boost the financing capacity of the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), which better positioned the Bank Group to support clients in responding to multiple and more frequent crises than had been anticipated in the CIP. This review by IEG covers five years of CIP implementation. An ongoing parallel audit by the Group Internal Audit covers the financial efficiency aspects of the CIP. Management is fully committed to taking on board the lessons provided in the report through future CIP reporting and in the ongoing discussions on the Bank Group evolution.

World Bank Management Comments

Management welcomes the positive assessment of IBRD performance across several CIP policy measures and the “adequate” quality of CIP progress reporting. The report concludes that IBRD has fully implemented CIP commitments in engaging all country segments, global engagements (in particular, gender and climate), and in IBRD’s financial sustainability framework. The report also notes the quality of CIP progress reporting in these areas. These achievements, in turn, have contributed to more concessional lending to small states and have allowed IBRD to scale up its crisis lending at a time of economic and political volatility across the world. Management notes the report’s confirmation that the Bank Group has fully implemented its crisis response commitments to countries affected by fragility, conflict, and violence (FCV)—although, there seems to be an inconsistency between the report’s positive write-up and the rating provided for this area in figure O.1. Management notes that some of the commitments in CIP were tagged with a longer-term target implementation date of fiscal year (FY)30, and there is a good prospect of demonstrating progress in future CIP reporting.

Management will redouble its efforts in areas where progress was assessed to be limited, including on operational effectiveness, market creation, and IBRD private capital mobilization (PCM). In the context of the Bank Group evolution discussions, the World Bank is exploring a series of initiatives to enhance operational efficiency and effectiveness. This includes the implementation of several “quick wins,” such as streamlining documents and reviews, reducing shadow processes, and simplifying the implementation of the Environmental and Social Framework. Going forward, working groups will develop additional proposals based on consultations with staff, clients, and shareholders, which will be rolled out over the course of FY24. IBRD’s PCM fell in FY20 and FY21 but rebounded in FY22 and FY23. The Bank Group evolution discussions are prioritizing PCM with more upstream support for reforms and mobilizing the collective capacity of the Bank Group institutions to incentivize the private sector to invest in addressing key global development challenges. One of the proposals focuses on refining the definition and measurement of PCM and private capital enabling. Another stream of proposed work is the revamped country private sector enabling diagnostics, strengthening private sector connections with country programs to build up the pipeline of operations supporting private capital enabling and PCM.

On domestic revenue mobilization, while it was not an explicit priority area of the CIP, management is committed to stepping up its work, including by following up on the recent IEG evaluation. An important step will be replacing Public Expenditure Review with the Public Finance Review as a core diagnostic, making a balanced assessment of revenues, expenditures, and financing sources. One proposal includes a systematic assessment of revenues for 20–30 countries each year. This approach proposes that for International Development Association (IDA) and IBRD countries with tax revenues below 15 percent of GDP, domestic revenue mobilization engagements would need to be part and parcel of the Country Partnership Framework discussions.

The new Bank Group knowledge compact proposed as part of the Bank Group evolution discussions aims to build on the insights provided in various reviews, including in this IEG report. Recognizing the pivotal role of knowledge in increasing the development impact of Bank Group’s work, the proposed new knowledge compact focuses on four area: an updated set of knowledge products (including new products to respond to global challenges), enhanced skills for staff and clients (including Bank Group–trained staff to cover public and private sector issues across the Bank Group), strategic partnerships (including facilitating structured dialogue that brings together stakeholders at country and global levels), and improved Bank Group knowledge processes and systems (including stronger outcome orientation).

Although lesson 1—on the need for senior leadership buy-in and greater clarity on strategic priorities—goes beyond the CIP, management will endeavor to reflect it in the context of the Bank Group evolution. The Bank Group evolution discussions reflect the insights captured in lesson 1. The Bank Group Evolution process has been a consultative process, engaging senior leadership throughout the Bank Group in the production of several papers to articulate the revised Bank Group mission and vision, strengthen links among the various initiatives that seek to improve the operational and financial models, and ensure alignment between the Bank Group’s vision and mission and the desired Bank Group results.

Management concurs with the need for improved indicators and greater outcome orientation reflected in lessons 2, 3 and 4 and is aiming to step up efforts as reflected in the proposed new Bank Group Corporate Scorecard (CSC). The proposed new Bank Group CSC will be aligned with the proposed revision to the Bank Group vision and mission and Bank Group evolution priorities. The proposed CSC will have thematic outcome areas under which it will track progress on select results indicators that will aggregate results from Bank Group country programs, with a line of sight to the development context in Bank Group client countries and global challenges discussed in the context of the Bank Group evolution engagement process. Management plans to take additional steps to improve result data collection, incentivize a results focus in operations, and institutionalize changes to the Bank Group results architecture to enhance its outcome orientation, consistent with the lessons mentioned in this IEG report.

International Finance Corporation Management Comments

IFC welcomes IEG’s extended validation approach. Additionally, management would like to emphasize that a robust framework for CIP commitments has been in place, with the intent to report on and hold IFC accountable for 2030 delivery in line with shareholder expectations. As referenced in the report, a reporting framework was developed in consultation with the Board of Executive Directors in 2020 and formally agreed on as the “enhanced reporting matrix” for the CIP. This reporting matrix complements the annual IFC CSC and the quarterly IFC Operations Report and ensures that IFC has the ability to monitor progress against both the targets set over the one- to three-year period as well as the longer-term FY30 commitments. This mechanism also enables consistent dialogue with the Board on progress toward FY30 commitments, including annual variation of delivery around the trend line.

In contrast, the IEG report defined formal commitments as measures that were in the reporting matrix plus additional commentary noted in the 2018 Development Committee’s capital package proposal text and appendixes. This discrepancy explains some reporting gaps highlighted in the report.

Management appreciates IEG’s acknowledgment of successful delivery to date on financial sustainability, global themes (including climate) and core mobilization and recognizes challenges on the implementation of CIP commitments in IDA countries experiencing fragile and conflict-affected situations (FCS). IFC financing has grown in absolute terms across all client segments including in IDA FCS and IDA countries that are also low-income countries (LICs). IFC aggregate investment volumes in both country groupings increased by more than 50 percent, from an average of US$794 million per year during the 18th Replenishment of IDA (for FY18–20) to US$1.2 billion per year during the 19th Replenishment of IDA (for FY21–22). That said, management acknowledges that delivery against IDA and FCS volume targets has been difficult, particularly in LIC IDA and FCS. Management also notes that the project count target for IDA and FCS (included in the IFC CSC to continue incentivizing delivery of small yet highly developmental projects) has been achieved, reaching 41 percent against the target of 39 percent in FY23.

Given the global context in recent years, IFC has focused on the needs of our clients in IDA FCS and LIC IDA countries by providing countercyclical financing as demand for investment shifted to trade, supply chain, and working capital (short-term) finance. In FY23, IFC’s short-term finance volume (while not included in the CIP IDA FCS target) reached US$7.5 billion in IDA and FCS countries (68 percent of the total) and US$3.0 billion in IDA FCS and LIC IDA countries (27 percent of the total).

IFC remains committed to investing in the most difficult markets and will continue to prioritize pipeline development in these markets through upstream and advisory. As of the end of FY23, 32 percent of IFC’s upstream pipeline volume was in IDA and FCS countries.

Management agrees with the assessment that the Cascade approach was not systematically implemented across the Bank Group and that, although IFC has met or exceeded its mobilization targets, the Bank Group has lacked mechanisms to achieve its ambitions on PCM. This gap was mainly due to the lack of clearly articulated objectives, indicators, and incentives that encourage systematic joint Bank Group delivery, which is now a key pillar of the new Bank Group operating model under the evolution agenda.

Management concurs that IFC’s operational efficiency and effectiveness initiatives have not achieved their goals yet. However, the all-time record program delivery in FY23, above CIP trajectory and without year-end bunching, indicates that the streamlined Accountability and Decision-Making for IFC investment services, as well as other measures introduced in FY22 and FY23 to simplify the internal structures, processes, and procedures are helping to strengthen internal alignment and gain speed. Having reduced escalations to the top-tier corporate committee (Tier 3 Project Committee) in FY23 to one-third of its previous volume as a result of the new Accountability and Decision-Making framework, management will pursue additional measures, such as removing duplicative and shadow processes, streamlining and standardizing document templates, scaling up implementation of platforms, and launching new mobilization vehicles. In addition to Bank Group’s CSC enhancements, IFC is currently developing a set of internal productivity and efficiency indicators that will enable better measurement of operational efficiency and effectiveness.

Management values the useful lessons in the report and will further reflect on them in future initiatives and in the evolution agenda. Management remains committed to candid reporting of progress with recognition of challenges and trade-offs. We note the points around enhancing outcome orientation and reporting against clear baselines and targets and will integrate these lessons going forward.