The World Bank Group’s 2018 Capital Increase Package An Independent Validation of Implementation and Results © 2023 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org ATTRIBUTION Please cite the report as: World Bank. 2023. The World Bank Group’s 2018 Capital Increase Package: An Independent Validation of Implementation and Results . Independent Evaluation Group. Washington, DC: World Bank. COVER PHOTO Adapted from AdobeStock/ AKrasov EDITING AND PRODUCTION Amanda O’Brien GRAPHIC DESIGN Luísa Ulhoa This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The bound- aries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. Because The World Bank encourages dissem- ination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. The World Bank Group’s 2018 Capital Increase Package An Independent Validation of Implementation and Results August 28, 2023 Contents Abbreviations v Acknowledgments vi Overview vii World Bank Group Management Response xx 1. Purpose and Background�����������������������������������������������������������������������������������������1 The Forward Look and the Capital Increase Package 2 Objective and Scope 4 Approach and Methods 5 Main Findings and Structure of the Report 10 Priority Area 1: Differentiating Support across Client Segments���������������������������12 2.  Reporting 15 IBRD Implementation for Countries below Graduation Discussion Income 15 IBRD Implementation for Countries above Graduation Discussion Income 18 IBRD Implementation for Small States 21 IFC Implementation 23 3. Priority Area 2: Leading on Global Themes�����������������������������������������������������������29 Crisis and Fragility, Conflict, and Violence 30 Climate Change 36 Gender 42 Knowledge and Convening 47 Regional Integration 52 Priority Area 3: Mobilizing Capital and Creating Markets�������������������������������������� 57 4.  Creating Markets and Private Capital Mobilization 58 Domestic Revenue Mobilization 65 Priority Area 4: Improving the World Bank Group’s Internal Model����������������������70 5.  Operating Model Effectiveness of IBRD 73 Operating Model Effectiveness of IFC 78 ii Financial Sustainability of IBRD 81 Financial Sustainability of IFC 86 6. Conclusions and Lessons��������������������������������������������������������������������������������������92 Capital Increase Package Reporting 92 Capital Increase Package Implementation 97 Capital Increase Package Outcomes 98 Lessons for Future Corporate Initiatives 99 Bibliography�������������������������������������������������������������������������������������������������������������103 Boxes Box 1.1. Previous Capital Increases 4 Box 1.2. Key Terms Used in This Report 9 Box 6.1. Issues with the CIP Design, Monitoring, and Reporting  96 Figures Quality of Capital Increase Package Implementation and Reporting Figure O.1.  across Capital Increase Package Clusters xviii Figure 2.1. IBRD Country Groupings 14 Figure 2.2. IBRD Financing to Countries below GDI 18 Figure 2.3. IBRD Financing to Countries above GDI  20 Figure 2.4. IBRD Lending to Small States 22 Figure 2.5 IFC Own-Account Commitments 25 Figure 3.1. World Bank Group Climate Finance 39 FC Commitments: Own Accounts Compared with Core Mobilization 62 Figure 4.1. I Deployable Strategic Capital and Capital Utilization Ratios of IFC Figure 5.1.  89 Tables Table 1.1. CIP Priorities, Policy Measures, and Commitments 7 Table 1.2. CIP Priorities, Clusters, and Intended Outcomes 8 Table 2.1. CIP Policy Measures for IBRD for Countries below GDI 16 Table 2.2. CIP Policy Measures for IBRD Countries above GDI 19 iii Table 2.3. CIP Policy Measures for IBRD Lending to Small States 22  IP Policy Measures for IFC for Differentiating Support Table 2.4. C across Client Segments 24 CIP Policy Measures for the World Bank Group for Crisis Table 3.1.  Management and Fragility, Conflict, and Violence 31 Table 3.2. CIP Climate Change Policy Measures for IBRD and IFC  37 Table 3.3. CIP IBRD Gender Policy Measures 43 Table 3.4. CIP IFC Gender Policy Measures 43 Table 3.5. World Bank Group’s CIP Policy Measures for Knowledge and Convening 48 World Bank Group’s CIP Policy Measures for Regional Integration Table 3.6.  53 World Bank Group’s CIP Policy Measures for Creating Markets Table 4.1.  and Private Capital Mobilization 58 Table 4.2. CIP DRM Policy Measures for IBRD and IFC  66 CIP Policy Measures for Improving the World Bank Table 5.1.  Group’s Internal Model 72 Table 5.2. CIP Financial Sustainability Policy Measures for IBRD 82 BRD Lending Limits and Key Financial Sustainability Table 5.3. I Framework Performance Metrics 85 Table 5.4. CIP Financial Sustainability Policy Measures for IFC 86 Table 5.5. IFC Key Financial Data 89 Quality of CIP Implementation and Reporting across CIP Clusters Table 6.1.  94 Appendixes Appendix A. Methods 112 Appendix B. Capital Increase Package Policy Measures and Commitments 118 iv Abbreviations AIMM Anticipated Impact Measurement and Monitoring CIP capital increase package CPF Country Partnership Framework CPSD Country Private Sector Diagnostic CSC Corporate Scorecard DRM domestic revenue mobilization ESF Environmental and Social Framework FCS fragile and conflict-affected situation FCV fragility, conflict, and violence FSF Financial Sustainability Framework FY fiscal year GDI graduation discussion income GIA Group Internal Audit HR human resources IBRD International Bank for Reconstruction and Development IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation LIC low-income country MDB multilateral development bank MFD Maximizing Finance for Development Independent Evaluation Group World Bank Group    v MIGA Multilateral Investment Guarantee Agency PCM private capital mobilization PEF Pandemic Emergency Financing Facility PSW Private Sector Window SALL sustainable annual lending limit SFK Strategic Framework for Knowledge UMIC upper-middle-income country All dollar amounts are US dollars unless otherwise indicated. Acknowledgments Rasmus Heltberg and Ichiro Toda (task team leaders) co-led this validation report. Deborah Delmar and Alena Lappo (consultants) and Lars Johannes (senior economist) were additional core team members. Maximillian Ashwill was the lead editor, and Jean-Jacques Ahouansou provided administra- tive support. Onno Ruhl (retired World Bank staff) and Roland Michelitsch (former evaluator general of the African Development Bank and retired International Finance Corporation staff) advised the team. The report was carried out under the direction of Chris Nelson (manager) and Carmen Nonay (director) and the overall guidance of Oscar Calvo- Gonzalez (acting vice president and Director-General, Evaluation). The report was peer reviewed by Tamar Manuelyan Atinc (nonresident senior fellow at the Brookings Institution), Otaviano Canuto (senior fellow at the Policy Center for the New South and nonresident senior fellow at the Brookings Institution), Tamar Gutner (associate professor of international The World Bank Group’s 2018 Capital Increase Package Acknowledgments affairs at American University’s School of International Service), and Monika Huppi (retired principal adviser at the Office of Evaluation and Oversight, Inter-American Development Bank). vi Overview This report presents the independent assessment, or validation, by the Independent Evaluation Group (IEG) of the World Bank Group’s 2018 capital increase package (CIP). Purpose and Background The CIP’s intention was to significantly expand the financing capacity of the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), thereby enabling both institutions to better achieve their strategic priorities. The CIP boosted the Bank Group’s financial firepower with a $7.5 billion paid-in capital increase for IBRD, a $5.5 billion paid-in capital increase for IFC, a $52.6 billion callable capital increase for IBRD, and internal savings measures. The CIP also committed IBRD and IFC to increasing their private capital mobilization (PCM) and fi- nancing for priority areas that were previously identified in 2016, in Forward Look: A Vision for the World Bank Group in 2030. These strategic priorities were the Bank Group’s enhanced engagement with all client country seg- ments, an expanded role in leading on global themes and delivering global public goods, increased public and private resource mobilization, operating model’s increased effectiveness, and improved financial sustainability. IEG conducted the assessment as an extended validation without the exten- Independent Evaluation Group World Bank Group    vii sive data collection typical of a full-fledged evaluation. This report builds on management’s reporting, evidence from 25 IEG evaluations, and technical discussions with counterparts to assess IBRD’s and IFC’s progress in imple- menting the CIP’s commitments and policy measures, achieving its targets, and contributing to its intended outcomes. It also assesses the extent and quality of management’s CIP reporting. The validation has some limitations stemming from its underlying evidence sources. Much of the data come from the Bank Group’s monitoring indicators, which—like corporate indicators in general, are of uneven scope and quality—and are often unable to capture outcomes. The implementation status of some policy measures was also difficult to ascertain because of gaps or a lack of clarity in management’s reporting. As a result, the validation assessed policy measures and priority area outcomes with uneven depth. More broadly, a limitation of this valida- tion is that, although there is no doubt that the Bank Group responded with speed and volume to the crises faced by client countries since 2019, it cannot make a clear causal attribution of this to the CIP. Priority Area 1: Differentiating Support across Client Segments IBRD’s reporting on the priority area of serving all clients has been satis- factory. Most of IBRD’s CIP commitments were specific and measurable, the reporting covered most commitments, and 11 reporting indicators were clearly linked to the commitments’ underlying objectives. IFC’s reporting has some shortfalls related to indicator precision. IBRD has fully implemented its commitments for countries below the grad- uation discussion income (GDI). Its portfolio in these countries has grown steadily—from 60 percent in fiscal year (FY)17 to 76 percent in FY19—and has remained above the target of 70 percent. Country-level data suggest that International Development Association (IDA) graduation has not led to a de- cline in total World Bank lending for most IDA-blend and graduate countries. The World Bank Group’s 2018 Capital Increase Package Overview IFC has made limited progress increasing its investment shares in IDA and in countries classified as having fragile and conflict-affected situations (FCS), despite IFC’s efforts to increase financing to these countries. IFC’s financing to low-income countries in the 17th Replenishment of IDA and in IDA FCS countries has fluctuated around an upward trend since FY19, but it averaged 9 percent as a share of its long-term own-account financing, which is below its low-end target for FY26 of 15 percent. IFC has increased its investments in all IDA and FCS countries, although it will need to grow faster to meet its ambitious targets. IBRD’s lending for upper-middle-income countries (UMICs), or above-GDI countries, has remained more or less stable but below target. IBRD stopped distinguishing between crisis and noncrisis volumes; thus, it was not pos- sible to validate this cluster’s target as it was originally defined. Country engagement documents for above-GDI countries did not systematically viii focus on strengthening policies and institutions, nor did they consistently focus on innovation, knowledge creation, and demonstration effects despite commitments and policy measures to this effect. IFC’s ability to add value through financial features (for example, financing structure, innovative financing instruments, and resource mobilization) and nonfinancial features (for example, noncommercial risk mitigation, knowl- edge, innovation, and capacity building) is central to its value proposition in UMICs. To ensure that this value is realized, the CIP committed IFC to following a rigorous approach to additionality for private sector investments in UMICs. A recent IEG evaluation found that IFC’s support in UMICs is addi- tional and that IFC does pay closer attention to documenting additionality in these countries (World Bank 2023a). IBRD has met its CIP commitments to small states. The CIP included two very specific measures for small states, including an increase in the base funding allocation to these countries and a waiver from IBRD’s price increase for them. These measures, which went into effect in FY19, increased IBRD’s concessionality for small states and led to an increase in average lending volumes for small states. IFC’s commitment to using a regional approach for investing in upper-middle-income small states that leverages blended finance and other tools to limit investment risks in fragile and lower-income small states was not precisely defined and could not be validated. Priority Area 2: Leading on Global Themes Crisis response became an even more dominant theme for the Bank Group Independent Evaluation Group World Bank Group    ix than was called for in the CIP. The Forward Look’s and CIP’s objectives were defined with the expectation that the Bank Group would need to respond to occasional major crises, but the reality has turned out differently, with the Bank Group being forced to respond to several major and overlapping crises. The Bank Group did so with a surge in financing for COVID-19 and other cri- ses, enabled by the CIP, IBRD’s crisis buffer, and the front-loading and early replenishment of IDA funds. The Bank Group has fully implemented its crisis commitments for countries affected by fragility, conflict, and violence (FCV). This includes IBRD’s crisis buffer allocation, which essentially sets aside IBRD funds for crisis lending, and a broad set of actions designed to shift from response to prevention. The Bank Group has strengthened its approach to FCV challenges. It adopted the FCV strategy (2020–25), introduced a new operational policy, strength- ened partnerships with the United Nations and humanitarian agencies, and increased FCV funding. The FCV reporting stands out among corporate reporting for its depth and candor, particularly on the challenges of oper- ating and achieving results in FCV contexts. The IFC commitments for this cluster were, first, to strengthen its partnerships and coordination on FCV approaches with the World Bank and other donors and, second, to increase IFC’s investments in high-risk FCV markets. It has been challenging for IFC to increase investments in FCV as intended because of the risks, complexi- ties, and informality of FCV environments. Over the FY10–21 period, IFC’s long-term financing commitments to FCS have been relatively flat, averag- ing 5.2 percent of IFC’s total commitment volume and 8.6 percent of its total number of committed projects. However, IFC introduced or adapted a suite of instruments partly to target FCS, including upstream advisory services, blended finance, and country diagnostics. IBRD’s and IFC’s reporting on their CIP gender implementation has been mostly adequate. Reporting was aligned with the gender strategy’s reporting and facilitated by existing corporate metrics on gender. The CIP gender com- The World Bank Group’s 2018 Capital Increase Package Overview mitments, indicators, and targets established by IBRD and IFC directly align with the Bank Group’s gender strategy. All six commitments have quantita- tive indicators and targets, which simplifies the reporting process. IBRD has exceeded its target of having 55 percent of its project designs close gender gaps, reaching 90 percent of all of operations approved in FY22. However, the gender indicators used within the CIP rely on the flag-and-tag method- ology, which only captures the intent of projects during the design phase, and by their nature do not assess the quality, effectiveness, and overall out- comes of the World Bank’s and IFC’s interventions. More outcome-oriented metrics are not currently available. Moreover, whereas the gender strategy proposed a country-driven approach to narrowing gender gaps through mul- tiple instruments acting in concert, in practice, implementation often took the form of stand-alone projects. The CIP’s knowledge and convening cluster’s intended outcome was for the Bank Group to improve its knowledge and convening power to address global issues, but the cluster’s policy measures were not precisely defined, and its x indicators did not capture the quality or effectiveness of the World Bank’s efforts in this area (which hampered reporting and validation of this cluster’s results). IBRD has implemented its policy measures in the knowledge and convening cluster. IBRD created the Strategic Framework for Knowledge, which captures the Bank Group’s current approach to knowledge manage- ment, and identified ways for the Bank Group to strengthen its knowledge management. IBRD also set up the global public goods fund to provide con- cessional finance for global public goods in middle-income countries. IBRD provided an initial $85 million in surplus funds to the global public goods fund as capital. Furthermore, both institutions widely share their data and research with the public; have taken steps to focus knowledge products on core diagnostics, such as the Country Climate and Development Reports and IFC’s Country Private Sector Diagnostics; and have made progress identify- ing knowledge gaps in country engagement products. The World Bank has expanded and broadened its support for regional in- tegration. More specifically, it has expanded its focus beyond Africa, and beyond its traditional focus on trade and infrastructure. However, the World Bank’s systems, accountability mechanisms, and incentive structures follow the country-driven model, and, in the absence of strong regional institutions and counterparts, it is often challenging to deepen the support for regional integration. Priority Area 3: Mobilizing Capital and Creating Markets Independent Evaluation Group World Bank Group    xi This cluster had five policy measures that were monitored through two indicators that capture progress toward a part of the intended outcomes (namely, mobilization) and do not reflect the quality or effectiveness of the World Bank’s efforts in this area. At the same time, the CIP’s creating markets agenda involved a solutions package and the Cascade approach. These components comprise the overall narrative of Maximizing Finance for Development and are aligned with the broader directions expressed in the 2030 Agenda and From Billions to Trillions: Transforming Development Finance Post-2015 Financing for Development: Multilateral Development Finance discussion note. The concept of a solutions package implies the use of a combination of new and established Bank Group instruments in a mutually reinforcing way to crowd in private resources. IBRD has made limited progress in mobilizing public and private capital as defined under the CIP. Its average annual PCM from FY19 to FY22 was 7.4 percent, well below its target of 25 percent. Following the capital in- crease in FY18, IBRD’s PCM ratio of mobilization to own-account financing decreased from 16 percent to 3 percent in FY21 but then rebounded to 9 per- cent in FY22, resulting in an average annual PCM of 7.4 percent between FY19 and FY22. Only in 2017 did IBRD meet its 25 percent mobilization target. IFC’s core mobilization ratio has been 94 percent averaged over the CIP period, exceeding the illustrative target of 80 percent of own-account com- mitments. Its mobilization totals increased from $10.2 billion in FY19 to $10.6 billion in FY22, and its mobilization ratio dropped over the CIP period (falling to 84 percent in FY22), which was still above the CIP’s 2030 target of an 80 percent average. The CIP’s market creation objectives were not fully articulated, and imple- mentation was not systematic. Bank Group management took steps toward The World Bank Group’s 2018 Capital Increase Package Overview implementing Maximizing Finance for Development through the Cascade approach, including issuing guidance notes to incorporate the approach in country engagement products, establishing working groups, creating IFC upstream units, strengthening analytical capacity, and providing communi- cation and training materials; however, there is little evidence that this led to operational work to create markets. IFC’s upstream operating model was launched in 2020 and envisaged a strong role for global units in supporting the creating markets strategy. In 2022, it moved most staff from these global upstream units to regional upstream units and further merged upstream and advisory teams. Furthermore, the Bank Group’s Cascade approach for creat- ing markets was partially at odds with volume and process efficiency targets and related staff incentives. However, in the absence of a monitoring frame- work, there was no evidence that these efforts were systematic or successful; the reporting relied on individual examples. Although the CIP has no formal domestic revenue mobilization (DRM) com- xii mitments, this area of work has become increasingly important because of fiscal deficits and high and rising debt levels in lower-income countries. The World Bank has intensified its DRM work since 2018 and pivoted toward tax policy. Evidence suggests that IBRD gave increased attention to DRM and tax policy and increasingly used development policy financing. IEG’s 2023 eval- uation of the World Bank’s DRM work finds that the World Bank’s support was greatest in countries with low revenue–to–GDP ratios, such as those in Sub-Saharan Africa and IDA-eligible countries. Nonetheless, the World Bank has shown limited internal collaboration and policy coherence on DRM. Two evaluations uncovered weaknesses in the World Bank’s internal collaboration and planning related to DRM, including weak links between its diagnostic work and its operational work on tax reforms. At the same time, the Bank Group’s collaboration with external partners on DRM has improved. However, IBRD and IFC’s CIP reporting on DRM has been unsatisfactory. The CIP has no formal DRM commitments and no indicators for measuring DRM, and CIP’s annual reporting has described the World Bank’s DRM work in cursory fashion. Priority Area 4: Improving the World Bank Group’s Internal Model The CIP emphasized efficiency commitments to tighten budget discipline, whereas the Forward Look emphasized putting human capacity in place to deliver on the Bank Group’s various strategies. For example, the Forward Independent Evaluation Group World Bank Group    xiii Look proposed a new human resources initiative to strengthen staff capac- ity—the people strategy—which the CIP did not pursue. Instead, the CIP featured efficiency commitments to tighten budget discipline, deliver sav- ings, and avoid costs. World Bank management has taken steps during the review period to en- hance the effectiveness of IBRD’s internal operating model. These steps include the following CIP policy measures: procurement reforms, the Agile Bank initiative, and the Environmental and Social Framework. The World Bank also undertook additional reforms to improve IBRD’s internal mod- el effectiveness that were not explicit policy measures or commitments but were described in CIP progress reports, such as trust fund reforms; the decentralization of staff and decision-making; and Country Engagement Framework enhancements. The results from IBRD and IFC’s implementation of this cluster proved hard to validate because some key initiatives were abruptly discontinued without explanation and attempts to learn from them, many reform outcomes were unknown, and monitoring and reporting was inconsistent. For example, World Bank management discontinued the Agile Bank initiative without explanation, and CIP implementation updates from FY20 onward ceased to report on the Agile Bank initiative; therefore, its results are unclear. IFC has implemented measures to enhance the effectiveness of its inter- nal operating model in accordance with CIP mandates. The goals of these measures, as described in the CIP document, include trimming bureaucra- cy, simplifying approval procedures, enhancing the development impact of project portfolios, and improving organizational effectiveness. It is hard to assess the effectiveness of IFC’s operating model because of a lack of met- rics and indicators, some reporting shortcomings, and the limited time IFC has been implementing these measures; however, initial results suggest that IFC’s portfolio approach and workforce planning have had some successes. The CIP contained a single commitment to introduce a new Financial Sustainability Framework (FSF) for IBRD. The FSF’s purpose was to align IBRD’s lending with its long-term sustainable lending capacity, ensure ef- The World Bank Group’s 2018 Capital Increase Package Overview ficient use of IBRD’s capital, and retain IBRD’s flexibility for responding to crises. IBRD fully implemented its CIP FSF measures and regularly updated the Executive Directors on its progress. Implementation of IBRD’s financial package increased IBRD’s capital base, increased its income from lending, and optimized its balance sheet. The FSF, including the crisis buffer, has allowed IBRD to increase its crisis lending and provide more fast-disbursing loans. IFC has made good progress implementing all the relevant measures listed in its FSF and reporting them, including IFC’s active portfolio management, balance sheet optimization, pricing policies with minimum investment return targets, and income-based designations for advisory services. IFC’s capital base was strengthened during the CIP period, demonstrating its improved financial sustainability. The rating agencies provided positive as- sessments of IFC’s financial risk management. xiv Conclusions and Lessons This validation shows that the Bank Group delivered many different major corporate commitments, even if it did not achieve all of its targets and objec- tives. Not only did the CIP infuse capital into IBRD and IFC, it also boosted the implementation of Bank Group priorities that already had corporate strategies and supportive internal arrangements in place, including for gender, climate change, and FSF. The CIP also had well-defined indicators and targets, and adequate reporting for these clusters. The Bank Group made the least progress in implementing clusters where policy measures were written as broad statements of intent and where it lacked clear strategies and measurable indicators or had limited oversight, weak collaboration, inadequate incentives, and overly ambitious targets. CIP reporting also had shortcomings in these clusters. Figure O.1 shows this validation’s rating of implementation progress and reporting across CIP clusters, showing clearly how instances with inadequate reporting were usually accompanied by limit- ed implementation progress. Independent Evaluation Group World Bank Group    xv  uality of Capital Increase Package Implementation and Figure O.1. Q Reporting across Capital Increase Package Clusters Differentiating support across client segments Global issues IBRD below GDI countries Gender IBRD above GDI countries Crisis management and FCV IBRD small states Climate change IFC differentiating support Regional integration Knowledge and convening Resource mobilization Internal model Creating markets IBRD effectiveness IBRD private capital mobilization IFC effectiveness IFC private capital mobilization IBRD financial sustainability Domestic revenue mobilization IFC financial sustainability Implementation progress Quality of reporting Cannot assess implementation progress Source: Independent Evaluation Group. Note: The number of dark gray rectangles shows the validation’s ratings for capital increase package implementation progress: one rectangle = not achieved; two rectangles = partially achieved; three rect- The World Bank Group’s 2018 Capital Increase Package Overview angles = achieved. The orange rectangles show ratings for reporting: one = major reporting shortfalls; two = some reporting shortfalls; three = adequate reporting. See chapter 6 and appendix A for the full criteria. FCV = fragility, conflict, and violence; GDI = graduation discussion income; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation. The CIP’s five intended outcomes achieved differing levels of success. These are listed from most successful to either least successful or those with insuf- ficient evidence for a more definitive assessment: 1. Improving the Bank Group’s financial sustainability: This is the area with the clearest progress. The CIP’s capital infusion and financial sustainabil- ity measures clearly strengthened IBRD’s and IFC’s capital bases, thereby enhancing both institutions’ financial sustainability. Although outside the scope of this validation, the CIP allowed the Bank Group to swiftly and substantially respond to the crises that affected client countries after 2019. 2. Leading on global themes: The Bank Group has undoubtedly expanded its role in promoting global themes during the CIP period. This includes xvi delivering global public goods through its concerted response to pandem- ics, FCS, climate change, and other crises. As mentioned, this response was compelled by a confluence of global crises, but the CIP also facilitated this response. 3. Differentiating support across client segments: The Bank Group continues to serve all country segments, and the country-based model continues to meet countries’ needs. The CIP led IBRD to focus more on below-GDI countries, and IBRD did meet its lending targets for these countries. IFC, for its part, has made limited progress toward its CIP financing targets for low-income and fragile countries, which, arguably, were overly ambitious for reasons that are not clear to this validation. 4. Mobilizing capital and creating markets: The CIP saw limited progress in scaling up public and private resource mobilization. Although IFC has met or exceeded many of its mobilization targets, IBRD has not. This partly re- flects the ambitious nature of the private resource mobilization targets for IBRD. At the same time, the Bank Group has lacked comprehensive strat- egies and support mechanisms to buttress its commitments and policy measures on DRM, PCM, and creating markets. 5. Improving the operating model’s effectiveness: IBRD and IFC have made many changes to their operating models, though not necessarily those anticipated in the CIP. The outcomes of these changes have not yet been Independent Evaluation Group World Bank Group    xvii assessed. The CIP’s clearest, or at least most measurable, legacy in this area is its management of salary and workforce growth, specifically its reduction in GH-level staff. However, the reduction in high-level technical staff likely decreased staff capacity and morale with unclear effects on the Bank Group’s performance. Five lessons emerged from the validation’s findings on developing, imple- menting, and reporting future corporate initiatives, including the CIP’s continued reporting: Lesson 1: Success was greatest when corporate initiatives focused the Bank Group on areas with buy-in. Senior leadership’s buy-in and support are a necessary condition for the successful implementation of corporate initia- tives. Many times, senior leadership demonstrates its buy-in by promoting corporate strategies or action plans, organizational champions, and changes to the Bank Group’s operating model. Shareholders could help increase the likelihood of success by ensuring that future policy measures are backed by a clear strategic vision, a conducive organizational model, and meaningful indicators and targets. Lesson 2: Good indicators, with baselines and targets, create clarity, foster accountability, and contribute to a strategy’s sustained implementation. The implementation of some CIP commitments and policy measures lacked continuity, but this did not occur for commitments that were guard railed by measurable indicators and targets. Core corporate indicators and targets can be blunt tools, but they make required actions and reporting clear, become embedded in results agreements, compel business units to follow through on these issues, and ensure the implementation’s continuity in the face of changes to senior management and corporate priorities. Lesson 3: Indicators should be aligned to commitments, and indicator monitoring should be grounded in routine operational processes. Reporting requirements multiply with the addition of new corporate initiatives and frameworks. Ensuring alignment between commitments and indicators and aligning indicators with those of existing corporate initiatives, systems, and The World Bank Group’s 2018 Capital Increase Package Overview frameworks will simplify the Bank Group’s reporting processes and ensure that corporate incentives are aligned. Lesson 4: Corporate indicators are a blunt tool for capturing policy measure outcomes. Corporate indicators capture the Bank Group’s actions, processes, and outputs but do not capture what outcomes these actions led to or how policy measures interacted across clusters. This is because corporate indica- tors focus on activities and outputs that are under the Bank Group’s control. Although useful from an accountability perspective, this carries the risk that corporate indicators may perfectly measure the trees while ignoring the forest. To improve corporate indicators, the Bank Group could tap into their data-rich project monitoring and evaluation systems to develop metrics and assessments that better capture ongoing and ex post results. The Bank Group could also combine indicator-based reporting with periodic deep dives that focus on outcomes. xviii Lesson 5: Report with candor. Honest and accurate reporting on imple- mentation challenges enables the organization to learn and adjust. As such, future reporting would benefit from greater candor on progress, challenges, and trade-offs. Management and Executive Directors may want to reflect on what signals they give to business units that report candidly on their suc- cesses and failures. Independent Evaluation Group World Bank Group    xix World Bank Group Management Response 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 ca- pacity 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 fre- quent 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 The World Bank Group’s 2018 Capital Increase Package Management Response 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 prog- ress reporting. The report concludes that IBRD has fully implemented CIP commitments in engaging all country segments, global engagements (in par- ticular, 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 vi- olence (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 xx 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 im- plementation 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 develop- ment 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 Independent Evaluation Group World Bank Group    xxi 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 re- placing Public Expenditure Review with the Public Finance Review as a core diagnostic, making a balanced assessment of revenues, expenditures, and fi- nancing 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 re- views, 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 pub- lic 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 en- deavor 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 The World Bank Group’s 2018 Capital Increase Package Management Response 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. xxii International Finance Corporation Management Comments IFC welcomes IEG’s extended validation approach. Additionally, manage- ment 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, in 2020, a reporting framework was developed in consultation with the Board of Executive Directors 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 mech- anism also enables consistent dialogue with the Board on progress toward FY30 delivery, 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 Independent Evaluation Group World Bank Group    xxiii 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 group- ings 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 bil- lion per year during the 19th Replenishment of IDA (for FY21–22). That said, management acknowledges that delivery against volume IDA and FCS 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 con- tinue 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 financ- ing 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 up- stream and advisory services. 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 en- The World Bank Group’s 2018 Capital Increase Package Management Response courage 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 pro- gram 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 stan- dardizing document templates, introducing guidelines for investment team composition based on project risk tiering, scaling up implementation of plat- forms, and launching new mobilization vehicles. In addition to Bank Group’s CSC enhancements, IFC is currently developing a set of internal productivity xxiv 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. Independent Evaluation Group World Bank Group    xxv 1 | Purpose and Background About This Report This report presents the Independent Evaluation Group’s indepen- dent assessment, or validation, of the World Bank Group’s 2018 capital increase package (CIP). The report builds on management’s own reporting and other complementary evidence to assess the World Bank Group’s progress in implementing the CIP’s policy measures and achieving its targets. The report also assesses the quality of management’s CIP reporting. The validation’s main intended audiences are the Board of Governors, to whom the CIP’s original commitment of an inde- pendent assessment was made; the Board of Executive Directors, through the Committee on Development Effectiveness; and the management of the International Bank for Reconstruction and Development and the International Finance Corporation. Work on this report started before, and was independent of, the Evolution Roadmap, which is considering how to evolve the Bank Group’s mission, resources, and operating model. 1  The World Bank Group’s shareholders endorsed a capital increase pack- age (CIP) on April 21, 2018. This package boosted the Bank Group’s financial firepower with a $7.5 billion paid-in capital increase for the International Bank for Reconstruction and Development (IBRD), a $5.5 billion paid-in cap- ital increase for the International Finance Corporation (IFC), a $52.6 billion callable capital increase for IBRD, and internal savings measures.1 The CIP had two parts: (i) a financing package to enhance IBRD’s and IFC’s financial capacity and (ii) a policy package that committed Bank Group management to policy actions linked to the Bank Group’s 2016 Forward Look strategy. The CIP committed to reporting annually on its implementation and an indepen- dent assessment after five years. This report fulfills the commitment to an independent assessment. The CIP’s intention was to significantly expand IBRD’s and IFC’s financing capacity, thereby enabling both institutions to better achieve their strate- gic priorities. The CIP’s goal was to increase IBRD’s annual commitments to about $36 billion and IFC’s to $25 billion by fiscal year (FY)30, subject to external factors. The CIP also committed IBRD and IFC to increasing their private capital mobilization (PCM) and financing for certain priority areas previously identified in the Forward Look strategy. The World Bank Group’s 2018 Capital Increase Package  Chapter 1 The Forward Look and the Capital Increase Package In 2016, the Bank Group’s management and shareholders agreed to a foun- dational strategy document—Forward Look: A Vision for the World Bank Group in 2030. The Forward Look set out a vision and strategy for the Bank Group’s global role, with the objective of shaping “a common view among shareholders on how the World Bank Group can best support the devel- opment agenda for 2030” (World Bank Group 2016b, 1). The Forward Look reaffirmed the Bank Group’s value proposition, which includes working on both national and global issues and engaging with both the public and pri- vate sectors. The Forward Look’s strategic priorities were as follows: » Continue to work with the full range of client countries but with different pricing and product offerings to different client segments. These country segments include countries below and above IBRD’s graduation discussion 2 income (GDI) level, which is set at a gross national income of $7,155 per capita; small states; recent International Development Association (IDA) graduates; and for IFC, IDA and countries classified as being in a fragile and conflict-affected situation (FCS). This priority is known as serving all clients. » Expand the Bank Group’s role in delivering global public goods and leading on global themes, including gender, climate change, major crises, disease outbreaks, and fragility, conflict, and violence (FCV). » Increase the Bank Group’s role in generating knowledge and convening partners. » Increase the Bank Group’s public capital mobilization and PCM, bringing to- gether the joint capabilities of the Multilateral Investment Guarantee Agency (MIGA), IFC, and the World Bank (IBRD and IDA). » Improve the effectiveness of the Bank Group’s operational model. In 2018, the Bank Group’s shareholders agreed to a CIP for IBRD and IFC that responded to the principles stated in the Forward Look. The CIP was meant to allow IBRD and IFC to expand their financing operations and implement the Forward Look. In return, management committed to “implementing the necessary operational and cultural changes to make the [Bank Group] op- erationally fit for purpose to follow the strategic directions set forth in the Forward Look and for achieving the Sustainable Development Goals” (World Bank Group 2018b, i). Specifically, management committed to a package of financial measures and integrated policy reforms for both IBRD and IFC. This linking of a capital increase to extensive formal commitments was histor- Independent Evaluation Group World Bank Group    3 ically unique (box 1.1). The capital increase’s policy package was anchored in the Forward Look and shared most, but not all, of its strategic priorities, including differentiating support across client segments (serving all cli- ents), leading on global themes, mobilizing private and public resources and creating markets, and improving the Bank Group’s operating model. The CIP introduced policy measures and made formal commitments that reflected these strategic priorities. Box 1.1. Previous Capital Increases The International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC) expand their capital at irregular intervals. Unlike the International Development Association’s annual replenishments, IBRD and IFC do not have regular reviews or expansions of capital needs and do not have a set sched- ule for reviewing their strategies. In fact, IBRD has raised its capital base only four times—in 1959, 1979, 1988, and 2010—except for small, selective capital increases to adjust relative shareholdings. Since its establishment in 1955, IFC has had capital in- creases in 1963, 1977, 1991, and 1992. Past capital increases for both IBRD and IFC were not tied to strategy reviews and were not accompanied by policy actions, except when in 2010, IBRD linked its capital increase to the World Bank’s postcrisis strategy and proposed operational reforms that opened data and access to information policies. For their part, other multilateral banks, such as the European Bank for Reconstruction and Development, have linked periodic strategy reviews to capital requirement reviews. Source: Independent Evaluation Group. The multiple overlapping global crises since 2018 have created challeng- The World Bank Group’s 2018 Capital Increase Package  Chapter 1 es for developing and achieving the Forward Look’s and CIP’s goals. The Forward Look and the CIP both assumed that the Bank Group would have to respond to the occasional crisis, but the reality has turned out differently. The Bank Group has been forced to respond to multiple major crises since 2018, including COVID-19, the fallout from Russia’s invasion of Ukraine, un- precedented food insecurity, and the developing world’s debt crisis, among others. All of these have caused major development setbacks and under- mined the Bank Group’s ability to achieve the Forward Look’s and CIP’s priorities. With crises becoming more frequent and severe, the Bank Group expects that crisis prevention, preparedness, and response will continue to be a major part of its work (World Bank Group 2022c). Objective and Scope This report’s purpose is to fulfill Bank Group management’s commitment to the Board of Governors that there would be an independent assessment after five years of the CIP’s progress. The Independent Evaluation Group (IEG) 4 conducted the assessment as an extended validation without the extensive data collection typical of a full-fledged evaluation. As such, the report’s main objective is to validate management’s own reporting on the CIP and independently assess the Bank Group’s progress toward the CIP’s targets and policy commitments in the context of the Forward Look. This validation covers IBRD and IFC but not MIGA or IDA. MIGA did not receive a capital increase and is therefore not covered by this review. IDA is also outside the scope because IDA replenishments are separate from the CIP. This report focuses on the CIP’s policy package while excluding the Bank Group’s efficiency measures, including budget commitments and relat- ed savings measures that Group Internal Audit (GIA) is reviewing. Approach and Methods Three questions guided this assessment: » To what extent has CIP reporting by management of the World Bank and IFC been relevant and adequate? » To what extent have the World Bank and IFC implemented the CIP’s policy measures? » What kind of progress have the World Bank and IFC made toward achieving results related to CIP and Forward Look’s priorities and policy measures, and how did the CIP contribute to this progress? Independent Evaluation Group World Bank Group    5 This validation reviewed management’s regular CIP reporting and collected evidence from IEG evaluations and technical discussions with counter- parts. Management has reported extensively on the Forward Look and CIP implementation through Forward Look, and CIP updates to the Board of Governors, Corporate Scorecards (CSCs), Strategy and Business Outlooks, and board reports on the CIP’s individual priority areas (including FCV, climate change, and gender issues). The CIP’s financial aspects are report- ed in the Bank Group’s budget papers and IBRD’s Financial Sustainability Framework (FSF) reporting. The validation reviewed all of this reporting and uses evidence from 25 IEG evaluations with direct relevance to the CIP’s priority areas and the Management Action Record’s reporting on the imple- mentation of the recommendations of these evaluations. The IEG validation team conducted interviews with Bank Group and Executive Director staff and had technical discussions and email exchanges with the World Bank and IFC business units in charge of implementing or reporting on the CIP. IEG devised a systematic validation framework with the following elements. First, the validation adopted the CIP’s structure with four priority areas or- ganized into 12 thematically similar clusters, listed in table 1.1. Second, the validation team compiled each cluster’s commitments, policy measures, indicators, and targets. Third, it gathered all the relevant evidence on each of these clusters. Fourth, it distilled findings into this report, assessing the following for each cluster: (i) the adequacy of management’s reporting, which corresponds to the first validation question; (ii) the implementation of policy measures and achievement of targets, which corresponds to the second validation question; and (iii) the progress on results or outcomes, both expected and unexpected, which corresponds to the third validation question (see appendix A). The validation used a simple rating scale to assess management’s reporting on and implementation of the CIP. A theory of change helped the validation distinguish between actions, outputs, and outcomes (see appendix A). The validation defines the CIP’s five intended outcomes as the Bank Group’s enhanced engagement with all client coun- The World Bank Group’s 2018 Capital Increase Package  Chapter 1 try segments, expanded role in leading on global themes and delivering global public goods, increased public and private resource mobilization, operating model’s increased effectiveness, and improved financial sustain- ability (table 1.2). The validation assessed IBRD and IFC jointly whenever feasible and separately when the targets or policy measures from each institution diverged. 6 Table 1.1. CIP Priorities, Policy Measures, and Commitments Priorities and Clusters Institution Policy Measures Commitments 1. Differentiating support across client segments 1.1 Below GDI IBRD 5 5 1.2 Above GDI IBRD 2 2 1.3 Small states IBRD 2 2 1.4 IFC differentiating IFC 4 4 support Subtotal 13 13 2. Leading on global themes 2.1 Crisis response and World Bank 4 4 FCV Group 2.2 Climate change Bank Group 6 6 2.3 Gender IBRD 2 2 IFC 4 4 2.4 Knowledge and con- Bank Group 6 2 vening 2.5 Regional integration Bank Group 1 1 Subtotal 23 19 3. Mobilizing capital and creating markets Independent Evaluation Group World Bank Group 3.1 Private sector Bank Group 5 2 3.2 Domestic revenue Bank Group 2 0 mobilization Subtotal 7 2 4. Improving the operating model 4.1 Effectiveness Bank Group 4 2 4.2 Financial sustainability Bank Group 2 2 Subtotal 6 4 Total 49 38 Source: Independent Evaluation Group. Note: CIP = capital increase package; FCV = fragility, conflict, and violence; GDI = graduation discussion income; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation. 7 Table 1.2. CIP Priorities, Clusters, and Intended Outcomes CIP Priority Areas CIP Clusters Intended Outcomes 1. Differentiating support across » Below-GDI countries » The World Bank all client segments (serving all » Above-GDI countries Group’s enhanced clients) engagement with » Small states all client country segments 2. Leading on global themes » Crisis and FCV response » The Bank Group’s » Climate change expanded role in leading on global » Gender themes and deliv- » Knowledge and convening ering global public » Regional integration goods 3. Mobilizing capital and creat- » Creating markets and pri- » The Bank Group’s in- ing markets vate capital mobilization creased public and » Domestic revenue mobi- private resource lization mobilization 4. Improving the operating » Operating model effec- » The Bank Group’s model tiveness operating model’s » Financial sustainability increased effective- ness » The Bank Group’s improved financial sustainability The World Bank Group’s 2018 Capital Increase Package  Chapter 1 Source: Independent Evaluation Group. Note: CIP = capital increase package; FCV = fragility, conflict, and violence; GDI = graduation discussion income. The validation distinguished between formal commitments and other policy measures. The CIP text defined formal commitments as specific actions with targets that the Bank Group is held accountable for pursuing. The validation further defined formal commitments as measures that were (i) explicitly underlined in the CIP document’s text, (ii) specified with a target, (iii) listed in the CIP document’s annex summary, or (iv) listed in the Forward Look and CIP updates’ status tables with indicators, targets, and results (World Bank Group 2019a, 2020a, 2021d, 2022b). By contrast, the CIP document also discussed policy measures, which the validation understood to be important or critical actions the Bank Group would take to achieve the CIP’s priorities. Box 1.2 defines these and other key terms, and appendix B lists all of the CIP’s commitments and policy measures. 8 Box 1.2. Key Terms Used in This Report Clusters. The 12 thematic areas assessed for this validation (see table 1.2). Commitments. Specific policy measures with a defined qualitative or quantitative target. Policy measures. Planned or ongoing actions discussed in the Forward Look or capital increase package that contribute to the Forward Look or capital increase package priorities. Priority areas. The four thematic groups—differentiating support across client seg- ments, leading on global themes, mobilizing private and public resources and creating markets, and improving the World Bank Group operating model—that contain the 12 clusters, align with the Forward Look’s stated priorities, and form this report’s chapter structure. Intended outcomes. The Bank Group’s enhanced organizational capacity to deliver the five objectives listed in table 1.2. Source: Independent Evaluation Group. The validation has a few limitations stemming from its underlying evidence sources. The evidence base is formed by the information available in Bank Group reporting and internal monitoring systems. Many of the data come from the Bank Group’s monitoring indicators, which are of uneven quality. Independent Evaluation Group World Bank Group    9 The validation deals with this by assessing the indicators’ relevance. The implementation status of some policy measures was difficult to ascertain because of gaps or a lack of clarity in management’s reporting. Moreover, the reporting rarely discussed the outcomes of the policy measures and priority areas, instead focusing on actions or outputs. To fill this knowledge gap, the validation reviewed relevant IEG evaluations; however, recent IEG evalua- tions are not available for all of the clusters, so the validation assessed policy measure and priority area outcomes with uneven depth. Main Findings and Structure of the Report The report’s main findings are as follows. The Bank Group has made nota- ble progress on the CIP priorities of increasing the Bank Group’s financial sustainability, promoting global themes (including climate change), and, for IBRD, engaging with different client country segments and increasing its financing for below-GDI countries. However, the Bank Group made the least progress in creating markets; IBRD made the least progress in mobiliz- ing private capital and domestic revenues, and despite notable efforts, IFC made the least progress toward achieving its ambitious targets for increasing financing for low-income and fragile countries. Furthermore, the CIP con- tributed to action on CIP clusters where the Bank Group already had clear strategies or action plans, supportive internal organizational arrangements, and well-defined indicators and targets. The CIP clusters with the least progress were those where the Bank Group lacked a clear vision and measur- able indicators or had weak oversight, limited collaboration, and inadequate incentives. The report’s findings have clear implications for designing and reporting on future corporate initiatives. Each of the next four chapters assesses the reporting, implementation, and The World Bank Group’s 2018 Capital Increase Package  Chapter 1 outcomes of each of the four priority areas. These are (i) differentiating the Bank Group’s offerings to different client country segments (or serving all clients); (ii) leading on global themes, including gender, FCV, climate change, regional integration, and knowledge and convening; (iii) mobilizing public and private capital and creating markets; and (iv) improving the effec- tiveness and financial sustainability of the World Bank and IFC operating models. Chapter 6 sums up the validation’s findings and provides lessons for designing and reporting on future corporate initiatives. Appendix A de- scribes the methods used, and appendix B lists the CIP’s commitments and policy measures. 10 1  The capital increase of the International Bank for Reconstruction and Development combines a general capital increase, based on increases proportionate to existing shareholders, and a se- lective capital increase, which would increase the share of some countries’ commitments more than others, thereby altering the relative voting power of member countries. Independent Evaluation Group World Bank Group    11 2 | Priority Area 1: Differentiating Support across Client Segments Highlights The International Bank for Reconstruction and Development has fully implemented all of its commitments and is on track to achieve most of its targets for differentiating support across client segments. This priority area has led to increased lending to countries below the graduation discussion income level; stable, but below-target, lending volumes to countries above the graduation discussion income level; and average lending volumes, including increased concessional lending, to small states. The International Finance Corporation has made limited progress in this priority area. The International Finance Corporation’s financ- ing volumes for low-income and fragile countries are not currently on track to meet their ambitious targets. The International Finance Corporation has a well-defined approach to additionality in upper-middle-income countries, but it has not employed knowledge and innovation additionalities to a greater extent in upper-middle-income countries than in lower-middle- income countries. 12   The CIP’s serving all clients priority area, to differentiate the Bank Group’s support across client segments, is well aligned with the Forward Look’s objectives. The CIP’s policy measures capture all the key dimensions of the Forward Look’s objectives, including the Bank Group’s need to engage a wide range of clients in ways that respond to their diverse development challenges. This priority area has 13 policy measures organized into three different country clusters (tables 2.1–2.4). IBRD’s country clusters include (i) low- and middle-income countries below the per capita GDI of $7,155, (ii) upper-middle-income countries (UMICs) with a per capita income above the GDI, and (iii) small states with populations below 1.5 million. (See figure 2.1 for income thresholds for these country groupings.) IFC’s policy measures were originally organized around the same country clusters, but with an additional distinction of IDA and FCS countries. However, starting in 2020, IBRD and IFC management implemented a reporting matrix that clarified the key commitments and targets, in consultation with Executive Directors. Starting with the 2020 annual implementation update, the annual CIP updates included CIP implementation status tables that reported on a subset of the original commitments and targets. The largest difference between the commitments in the original CIP Development Committee paper and those reported in the annual CIP updates is for IFC in the serving all clients priority area. Here, the simplified reporting matrix clarified that IFC’s implementation was to be tracked for IDA and FCS countries, rather than using the above- and below-GDI distinction. The revisions aligned IFC’s commitments in this priority area with its IFC 3.0 creating markets Independent Evaluation Group World Bank Group    13 strategy, which focused more on IDA and FCS countries. IFC also revamped its CSC to align with the capital increase commitments as captured in the simplified reporting matrix. Accounting for the simplified reporting matrix’s revision, the validation identified 11 indicators, of which 4 are quantitative, to monitor these 13 policy measures. 14 The World Bank Group’s 2018 Capital Increase Package Chapter 2 Figure 2.1. IBRD Country Groupings Low-income Lower-middle-income country Upper-middle-income country High-income country country IDA elegible IBRD elegible Below graduation discussion income Above graduation discussion income GNI per capita (US$) 1,085 1,255 4,255 7,155 13,205 0 5,000 10,000 15,000 Source: Independent Evaluation Group. Note: GNI = gross national income; IBRD = International Bank for Reconstruction and Development; IDA = International Development Association. The remainder of this chapter discusses, first, IBRD’s reporting on this priority area; second, its implementation of the priority area’s policy mea- sures for below-GDI countries, above-GDI countries, and small states; and, third, IFC’s reporting and implementation on the priority area. The report finds that IBRD’s implementation was excellent and adequately reported, in part because its commitments were specific, achievable, and measurable. IFC has so far made more limited implementation progress, in part because its CIP commitments in this priority area were highly ambitious and the global environment has not been conducive to growing IFC’s investments in low-income and fragile countries. Reporting Whenever commitments and indicators in this priority area were specif- ic, reporting has been satisfactory. Most of IBRD’s CIP commitments were specific and had clear and measurable indicators, its reporting covered most commitments, and the 11 reporting indicators were clearly linked to the commitments’ underlying objectives. Indicators focus on lending volume and do not assess qualitative aspects, such as the World Bank’s support for countries’ sustainable IDA graduation or enhanced coordination across Bank Group institutions. IFC’s monitoring and reporting, however, has some shortfalls. For example, IFC has reported on an indicator related to IFC additionality in above-GDI countries, but the indicator was not precisely for- mulated and did not do a good job of capturing progress toward the intended outcome. Similarly, IFC reported its commitment to promote a regional Independent Evaluation Group World Bank Group    15 investment approach in middle- to upper-income small states as fulfilled but has not provided any further details. IBRD Implementation for Countries below Graduation Discussion Income IBRD committed to increasing its financing to below-GDI countries. As shown in table 2.1, it has committed to a gradual and linear rise in its share of noncrisis lending to below-GDI countries to reach 70 percent by FY30. Its focus on noncrisis lending has meant that, during crisis situations, IBRD would have the flexibility to expand lending to above-GDI countries without breaking this commitment. IBRD has also targeted reaching a 67 percent lending share for noncrisis lending to below-GDI countries over the FY19–30 period, implying that under noncrisis circumstances, IBRD should lend relatively more to below-GDI countries and relatively less to above-GDI countries. However, when the lending terms of IBRD’s crisis buffer became the same as those for regular short-term lending,1 IBRD stopped separately tracking crisis and noncrisis lending volumes. As a result, progress on the originally defined indicator could not be validated. To achieve this commit- ment more generally, IBRD implemented differentiated loan pricing and single borrower limits on July 1, 2018, offering price discounts to below-GDI countries but no exemptions or discounts to above-GDI countries. Small states, FCS, and IDA-blend countries were exempted from this price increase. As a result of its CIP commitment, IBRD’s portfolio in below-GDI coun- tries has grown steadily. It’s financing share for these countries grew from 60 percent in FY17 to 76 percent in FY19 and has remained above the target average of 67 percent in each of the past five years. Moreover, the cumulative financing for below-GDI countries remains on track to meet IBRD’s illustra- tive CIP target of $260 billion over the FY19–30 period (figure 2.2). Table 2.1. CIP Policy Measures for IBRD for Countries below GDI The World Bank Group’s 2018 Capital Increase Package Chapter 2 IBRD Policy Measures (below GDI) Commitments Indicators Targets IBRD will prioritize Prioritize IBRD support to IBRD financ- 100% replacement of support to IDA IDA graduates and new ing for recent IDA financing for IDA graduates and new blends aiming to make IDA graduates graduates. blends, aiming to available resources to relative to IDA make available fully replace IDA financ� financing be- resources to fully ing for graduates. fore graduation. replace IDA financ- CIP main text. Underlined Limited report- ing for graduates. and in annex summary of ing. the capital package. IBRD will increase Aim for a gradual and Percent of 70% by FY30; aver- noncrisis lending to linear rise in IBRD share financing to age share of 67% MICs below GDI.  of noncrisis lending to countries be- over FY19–30. countries below GDI. low GDI.  CIP main text. Underlined and in annex summary of the capital package. (continued) 16 IBRD Policy Measures (below GDI) Commitments Indicators Targets Increase $260 billion cumula- No indicator in $260 billion over cumulative IBRD tive IBRD financing to CIP implemen- FY19–30 in nominal financing to below- below-GDI countries tation status terms. GDI countries. over FY19–30 in nomi- table. Reported nal terms, $110 billion, in implemen- or 70%, more than if no tation updates package. narrative. CIP main text. Not under- lined but listed in annex summary of the capital package as “illustrative dollar numbers.” Higher SBL Higher SBL increase for Higher SBL Implemented (yes/ increase for coun- countries below the GDI. increase for no). tries below GDI. CIP main text. Underlined below-GDI and in annex summary of than above- the capital package. GDI countries introduced. Price discount for Price discount for Price discount Complete (yes/no). below-GDI coun- below-GDI countries for below-GDI tries, with blends and exemptions for countries and and recent IDA blends and recent IDA exemptions graduates exempt- graduates from the price for blends and ed from the price increase. recent IDA increase. CIP main text. Underlined graduates im- and in annex summary of plemented. the capital package. Source: Independent Evaluation Group. Independent Evaluation Group World Bank Group    17 Note: The bold text in the table was underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FY = fiscal year; GDI = graduation discussion income; IBRD = International Bank for Reconstruction and Development; IDA = International Development Association; MIC = middle-income country; SBL = single borrower limit. Country-level data suggest that IDA graduation has not led to a decline in total World Bank lending for most IDA-blend and graduate countries. IBRD has committed to supporting IDA graduates and new IDA-blend countries by replacing 100 percent of their IDA financing with IBRD resources. IBRD used an aggregate indicator—IBRD financing for recent IDA graduates relative to IDA financing before graduation—to monitor progress on this commitment. The indicator, and this validation’s review of country-level data, indicates that IBRD lending has replaced IDA after most countries graduated from IDA, and if it was not replaced, it was mainly because (for various reasons) those graduate countries did not demand IBRD financing at the same volume that they had previously borrowed from IDA. Figure 2.2. IBRD Financing to Countries below GDI 80 30 IBRD financing volume (US$,billions) 70 25 Share of IBRD financing (%) 60 20 50 40 15 30 10 20 5 10 0 0 2017 2018 2019 2020 2021 2022 Fiscal year IBRD financing to below-GDI countries (US$, billions) IBRD financing to below-GDI countries (%) Source: Independent Evaluation Group. Note: GDI = graduation discussion income; IBRD = International Bank for Reconstruction and The World Bank Group’s 2018 Capital Increase Package Chapter 2 Development. IBRD Implementation for Countries above Graduation Discussion Income IBRD’s lending for UMICs, or above-GDI countries, has remained more or less stable, which is below the CIP’s indicative expectations. IBRD com- mitted in the CIP to increase lending volumes for above-GDI countries and provided an indicative figure of $125 billion in cumulative noncrisis financing, in nominal terms, over the FY19–30 period (table 2.2). The main indicator used for this cluster, on updating Bank Group country engagement guidance, is insufficient to assess intended outcomes. As noted, IBRD has stopped distinguishing between crisis and noncrisis volumes; thus, it was not possible to validate this cluster’s result as it was originally defined. That being said, IBRD’s average total lending in the FY19–22 period has remained at $5.5–$9 billion, similar to the FY17–18 levels (figure 2.3). As such, its 18 lending to above-GDI countries has not grown as expected by the CIP. Table 2.2. CIP Policy Measures for IBRD Countries above GDI IBRD Policy Measures (above GDI) Commitments Indicators Targets There will be a Systematic analysis and assessment SCD and Implemented systematic analysis of the key elements of the IBRD country (yes/no). and assessment of graduation policy reflected in CPFs engage- the key elements of and updated in Performance and ment the IBRD graduation Learning Reviews of above-GDI guidance policy, reflected in countries. New IBRD activities will updated, CPFs and updated have a primary focus on interven� and capital in Performance and tions to strengthen policies and package Learning Reviews. institutions required for sustainable agreement IBRD graduation. Interventions will reflected be focused on innovative solutions in new for boosting shared prosperity, CPFs for delivering GPGs, and creating above-GDI knowledge. countries. CIP main text. Underlined and in an- nex summary of the capital package. The policy pack- Provide countries above the GDI No indica- $125 billion age would enable $125 billion cumulative lending tor in CIP cumulative IBRD to provide over FY19–30 in nominal terms, or imple- lending (non- countries above $40 billion (45%) more than without mentation crisis) over the GDI $125 billion a package. status FY19–30 cumulative lending CIP main text. Underlined and table. Not in nominal over FY19–30, or in annex summary of the capi- reported. terms. $40 bil- $40 billion (45%) tal package as “illustrative dollar lion, or 45%, more than without numbers.” more than if Independent Evaluation Group World Bank Group    19 a package. It would no package. also allow lending Combined to the above-GDI with mobili- countries for crisis zation from response (which private sector, would be excluded the increase from the lending would reach share target). $50 billion. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were for- mal commitments. CIP = capital increase package; CPF = Country Partnership Framework; FY = fiscal year; GDI = graduation discussion income; GPG = global public good; IBRD = International Bank for Reconstruction and Development; SCD = Systematic Country Diagnostic. Figure 2.3. IBRD Financing to Countries above GDI 45 12 IBRD financing volume (US$,billions) Share of total IBRD financing (%) 40 10 35 30 8 25 6 20 15 4 10 2 5 0 0 2017 2018 2019 2020 2021 2022 Fiscal year IBRD financing to above-GDI countries (US$, billions) IBRD financing to above-GDI countries (%) Source: Independent Evaluation Group. Note: GDI = graduation discussion income; IBRD = International Bank for Reconstruction and Development. Country engagement documents for above-GDI countries did not system- atically focus on strengthening policies and institutions. IBRD committed The World Bank Group’s 2018 Capital Increase Package Chapter 2 in the CIP to systematically analyze and reflect on key elements of its graduation policy in country engagement documents for countries that reach the GDI. According to the CIP, new IBRD activities in above-GDI countries should focus on strengthening the policies and institutions need- ed to graduate from IBRD borrower status. To fulfill this commitment, the Bank Group updated its country engagement guidance in September 2018 and again in July 2021. This validation reviewed 15 country engagement documents approved since July 2021 for above-GDI countries and found that these documents did discuss strengthening policies and institutions, but not consistently or systematically (which might have been expect- ed because of the CIP commitment and revised guidance). For example, most country engagement documents analyzed the country’s institution- al challenges separately rather than as a cross-cutting issue pertinent to all thematic areas. An exception to this general trend was Uruguay’s Country Partnership Framework (CPF) for the period FY23–27. This 20 CPF’s design emerged as a best practice because it used a cross-cutting institution-building lens to inform the country engagement’s three pro- posed high-level objectives. For instance, one of these objectives—to increase environmental outcomes and resilience to shocks—was informed by recent assessments on the country’s institutional capacity to meet its national and international climate change commitments. CPFs in above-GDI countries did not consistently focus on innovation and knowledge creation. The capital package emphasized the need to create knowledge and provide focused and innovative solutions to the complex development challenges of above-GDI countries. In fact, drawing knowl- edge from operational experiences in above-GDI countries and other UMICs to share with other countries is a core element of the Bank Group’s value proposition. However, IBRD has not reported on this policy measure with indicators or qualitative narratives. This validation’s review of the 15 above- GDI country engagement documents found that these countries’ CPFs have limited emphasis on innovation, knowledge creation, and demonstration effects. Thus, there is limited explicit evidence that IBRD programs in these countries have made the recommended shift. IBRD Implementation for Small States IBRD has met its CIP commitments to small states. The CIP included two very specific policy measures to enhance IBRD’s support to small states, including an increase in the base funding allocation to these countries and Independent Evaluation Group World Bank Group    21 a waiver from IBRD’s price increase for these countries (table 2.3). These measures, which went into effect in FY19, increased IBRD’s concessionality for small states and recognized these countries’ vulnerabilities and unique development challenges. These changes led to an increase in average lend- ing volumes for small states (figure 2.4). In fact, they were so effective that they compelled some small states that had stopped borrowing from IBRD to resume borrowing. Table 2.3. CIP Policy Measures for IBRD Lending to Small States IBRD Policy Measures for Small States Commitments Indicators Targets IBRD base alloca- Double IBRD base Base allocation for small Complete tion for small states allocation for small states doubled. (yes/no). will be doubled, states, subject to Reporting inconsisten- subject to pruden- prudential limits. cy. Initially, results were tial limits. CIP main text. reported aggregated by Underlined and in IDA cycle, and since fiscal annex summary of year 2020, annual lending the capital package. volumes were reported. Small states will be Exempt small Small states are exempt Complete exempted from the states from the from capital package pric- (yes/no). proposed maturity IBRD price in� ing increase. premium increase. crease. CIP main text. Underlined and in annex summary of the capital package. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were for- mal commitments. CIP = capital increase package; IBRD = International Bank for Reconstruction and Development; IDA = International Development Association. The World Bank Group’s 2018 Capital Increase Package Chapter 2 Figure 2.4. IBRD Lending to Small States 350 IBRD lending volume (US$, millions) 300 250 200 150 100 50 0 2017 2018 2019 2020 2021 2022 Fiscal year Source: Independent Evaluation Group. 22 Note: IBRD = International Bank for Reconstruction and Development. IFC Implementation IFC investment shares in IDA and FCS countries have not grown as expected, despite IFC’s efforts to increase financing to these countries. Table 2.4 shows IFC’s commitments and targets. IFC’s financing to low-income countries in the 17th Replenishment of IDA and IDA FCS countries has fluctuated around an upward trend since FY19 but averaged 9 percent as a share of its long- term own-account financing, which is below its low-end target for FY26 of 15 percent (figure 2.5, panel a). This means that to reach its lower-end target by 2026, IFC investments in these countries would have to increase by one percentage point annually. IFC has also made less than expected progress on increasing its share of long-term finance from own-account in the 17th Replenishment of IDA and FCS countries to on average 32.5 percent over the FY19–30 period (figure 2.5, panel b). However, despite IFC’s efforts to increase this financing, as discussed in later chapters, its average share of financing for the 17th Replenishment of IDA and FCS countries over the last four years was only 25.5 percent, compared with its FY18 value of 21 percent. IFC has increased its investments in IDA and FCS countries, although not at the rate needed to meet its targets, despite the availability of IDA Private Sector Window (PSW) resources. IFC committed to using IDA PSW resources to increase its share of investments in IDA and FCS countries. It has report- ed in CIP updates on its use of blended finance facilities and other sources Independent Evaluation Group World Bank Group    23 of external funding, such as the PSW, to increase the financial viability of projects in IDA countries. However, as discussed in chapter 3, it has proved challenging for various reasons for IFC to increase its investments as intend- ed in PSW-eligible countries.  IP Policy Measures for IFC for Differentiating Support across Table 2.4. C Client Segments IFC Policy Measures Commitments  Indicators  Targets  Expand commitments in Expand commitments in Percent of 40% of all com- IDA and FCS countries.  IDA �and� FCS� countries. own- mitments by Not underlined in CIP but account FY30, averag- listed in annex summary commit- ing 32.5% over ofthecapitalpackage.  ments in FY19–30.  IDA17 FCS countries.  Use the IDA PSW to Use replenished PSW re� Percent 15–18% by FY26; substantially increase sources to increase share of total 15–20% by FY30.  own-account annual com- of IFC commitments in annualcom- mitments in LIC IDA17 and low-income IDA and IDA mitments to IDA FCS countries.  FCS countries. low-income CIP main text. Underlined IDA17 and and in annex summary of FCS coun- the capital package.  tries.  Selective private sector Selective private sector Adoption Complete (yes/ investments in UMICs by investments in UMICs of new no).  IFC, with rigorous addition- following a rigorous ap- additionality ality assessment and focus proach to additionality. framework. on regional partnerships, Not underlined but rec- frontier regions, financial ognized as commitment stability, and global public in CIP implementation The World Bank Group’s 2018 Capital Increase Package Chapter 2 goods.  status tables.  Promote a regional Promotion of regional New Complete (yes/ approach to investments in approach to IFC invest� approach no).  middle- to upper-middle- ments in middle- to incorpo- income small states and upper-middle-income rated in aim to leverage the use small states and lever� relevant of de-risking tools for the aging of de-risking tools papers and lower-income and FCV for the lower-income and reports. ones.  FCV ones. CIP main text. Underlined and in annex summary of the capital package.  Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FCS = fragile and conflict-affected situation; FCV = fragility, conflict, and violence; FY = fiscal year; GDI = graduation discussion income; IDA = International Development Association; IDA17 = 17th Replenishment of IDA; IFC = International Finance Corporation; LIC = low-income country; PSW = Private Sector Window; UMIC = upper-middle-income country. 24 Figure 2.5 IFC Own-Account Commitments a. In low-income IDA and FCS countries 20 1.5 O/A commitments Target 15% commitments (%) Share of IFC O/A (US$, billions) 15 1 10 0.5 5 0 0 2017 2018 2019 2020 2021 2022 Fiscal year IFC O/A commitments in LIC IDA17 and IDA FCS countries (US$, billions) Difference to reach low-end target (%) IFC O/A commitments in LIC IDA17 and IDA FCS countries (%) b. In all IDA and FCS countries Target average 32.5% 35 4 30 3.5 O/A commitments commitments (%) 3 Share of IFC O/A (US$, billions) 25 2.5 20 2 15 1.5 10 Independent Evaluation Group World Bank Group    25 1 5 0.5 0 0 2017 2018 2019 2020 2021 2022 Fiscal year IFC O/A commitments in IDA17 and FCS (US$, billions) Difference to reach target average (%) IFC O/A commitments in IDA17 and FCS (%) Source: Independent Evaluation Group. Note: Panel a: The target for this commitment was to increase the share of IFC investments in low- income IDA and IDA FCS countries to 15–18 percent by 2026 and 15–20 percent by 2030. The low end of the target for FY26 is 15 percent. Panel b: IFC aimed to expand commitments in IDA and FCS countries and reach up to 40 percent of IFC commitments by 2030 and an average of 32.5 percent over fiscal years 2019–30. FCS = fragile and conflict-affected situation; IDA = International Development Association; IDA17 = 17th Replenishment of IDA; IFC = International Finance Corporation; LIC = low- income country; O/A = own account. IFC has a well-defined approach to additionality in UMICs. Its ability to add value through financial features (for example, financing structure, innovative financing instruments, and resource mobilization) and nonfinancial features (for example, noncommercial risk mitigation, knowledge, innovation, and capacity building) is central to its value proposition in UMICs. To ensure that this value is realized, the CIP committed IFC to following a rigorous approach to additionality for private sector investments in UMICs (table 2.4). Additionality refers to the unique contributions that IFC brings to investment projects that are not offered by commercial sources of finance, thereby ensuring that IFC’s investment adds value without crowding out private sector activity. IFC’s corporate strategies indicate that as country income rises, IFC will rely more on additionality types based on both financial and nonfinancial innovation and deployment of knowledge. A recent IEG evaluation found that IFC does pay closer attention to documenting additionality in UMICs but does not differentiate the type of additionality it anticipates between UMICs and lower-middle- income countries, and, in practice, the type of additionality it anticipates in UMICs is not different from other client groups (World Bank 2023a). The evaluation also found that, contrary to its strategic expectations, IFC did not realize knowledge and innovation additionalities to a greater extent The World Bank Group’s 2018 Capital Increase Package Chapter 2 in UMICs than in lower-middle-income countries. According to IFC, the financing needs of middle-income countries remain large and exceed the supply of commercial sources of financing. IFC’s small states commitment was not precisely defined and could not be validated. IFC is committed to a regional approach for investing in middle- to upper-income small states and to leveraging blended finance and other tools to limit investment risks in fragile and lower-income small states. The indicator that IFC uses to measure its small states commitment was vague- ly defined as a “new approach incorporated in relevant papers and reports” (World Bank Group 2020a, 21). CIP updates have subsequently reported this commitment as complete since FY21 without corroborating evidence. As with other commitments, the weaknesses in the indicator and reporting mean that the commitment could not be validated; IFC may still have fo- cused on small states. 26 There are several reasons for the differences in IBRD’s and IFC’s achieve- ment of CIP targets for the differentiated support across the client segment priority area. First, IFC’s targets for IDA and FCS were more ambitious than IBRD’s targets for this cluster. Second, IBRD’s instruments made it easier to deliver. For example, IBRD could stimulate borrowing from certain coun- tries by exempting them from rate increases, whereas IFC needs to set loan charges commensurate with these countries’ commercial risks. Third, low growth and a difficult macroeconomic environment in IDA and FCS coun- tries in recent years have limited IFC’s investment opportunities. Tight credit in many countries during the COVID-19 pandemic also shifted de- mand for IFC’s investments to short-term and trade-related finance. Independent Evaluation Group World Bank Group    27 1  The crisis buffer includes additional International Bank for Reconstruction and Development funds that can be activated to cover financing surges during crises. The World Bank Group’s 2018 Capital Increase Package Chapter 2 28 3 | Priority Area 2: Leading on Global Themes Highlights The International Bank for Reconstruction and Development and the International Finance Corporation both made excellent prog- ress implementing their global themes capital increase package commitments and achieved most of their targets, particularly for gender and climate change. For example, the International Bank for Reconstruction and Development’s and the International Finance Corporation’s climate co-benefits reached record-high volumes in fiscal year 2022 after maintaining above-target values since fiscal year 2018. The World Bank Group has regularized its surge in support for crises, conflicts, and fragility and moved toward greater preven- tion—issues that have taken on increased importance since the capital increase package was established. 29  This chapter covers the five clusters under the CIP’s second priority area—leading on global themes—namely, crisis and FCV, climate change, gender, knowledge and convening, and regional integration. Crisis and Fragility, Conflict, and Violence Crisis response is an important theme in both the Forward Look and the CIP. The CIP committed the Bank Group to continue strengthening its response to global and regional crises of all types, with a special emphasis on preventing FCV situations. Table 3.1 shows that the CIP had four FCV- and crisis-related commitments—one for IBRD, two for IFC, and one for both institutions. In summary, these commitments include the following: (i) IFC and the World Bank focusing more on conflict prevention; (ii) IBRD providing innovative financing solutions, such as its crisis buffer; (iii) IFC providing more upstream diagnostics and using de-risking financing tools, such as the PSW; and (iv) IFC improving its collaboration with the World Bank on FCV issues. The CIP monitored these commitments using two qual- itative indicators with yes or no targets (table 3.1). These indicators focused on IBRD and IFC actions but did not capture their quality, effectiveness, and intended outcomes. The broad commitments and the few indicators on crisis The World Bank Group’s 2018 Capital Increase Package  Chapter 3 response and FCV make it difficult to know what successful implementation of the CIP commitments was expected to look like for both institutions. Crisis response became an even more dominant theme for the Bank Group than was called for in the CIP. The Forward Look and CIP objectives were defined with the expectation that the Bank Group would need to respond to occasional major crises, but the reality has turned out differently, with the Bank Group being forced to respond to several major and overlapping crises. As a result, the Bank Group has enhanced the way it prevents and responds to these events, as described in Navigating Multiple Crises, Staying the Course on Long-Term Development: The World Bank Group’s Response to the Crises Affecting Developing Countries and other reports (World Bank Group 2022c). The main takeaway from these documents is that as crises become more fre- quent and severe, there are increasing demands on the Bank Group to build resilience and respond to them. 30  IP Policy Measures for the World Bank Group for Crisis Table 3.1. C Management and Fragility, Conflict, and Violence IBRD and IFC Policy Measures  Commitments Indicators  Targets  Enhanced IBRD’s cri- Incorporate crisis re� Crisis buffer intro- Complete sis response capacity sponse into IBRD Financial duced. (yes/no). incorporated in the Sustainability Framework. Annual approved Monitored. Financial Sustainability CIP main text. Underlined amount of crisis Framework. and in annex summary of buffer and the capital package. resulting buffer- adjusted SALL level. IFC to strengthen Strengthen IFC partnership IFC’s FCS strat- Implemented partnerships with with the World Bank and egy integrated (yes/no). the World Bank and others to ensure a coor� into World Bank others to ensure a dinated approach to crisis Group FCV strat- coordinated approach management and FCV. egy. to crisis management CIP main text. Underlined Reported in and FCV. and in annex summary of implementation the capital package. updates narrative. Building on the Global Strengthened response No indicator in No target. Crisis Management to national, regional, and CIP implementa- Platform, the World global crises. Focus on tion status table. Bank Group propos- preventing escalation of Limited reporting es to strengthen its FCV situations and their in implemen- efforts to support spillover. tation updates FCV situations, with CIP main text. Underlined narrative. a view to reinforcing and in annex summary of country, regional and the capital package. Independent Evaluation Group World Bank Group    31 global stability, and development. Strong emphasis on crisis prevention. IFC’s upstream diag- Increasing IFC investments No indicator in No target. nostic work to guide in high-risk FCV markets CIP implementa- its investments in accompanied by upstream tion status table. high-risk FCV markets diagnostic work and im- Limited reporting and implementation plementation of specific in implemen- of specific de-risking de-risking solutions, such tation updates solutions, such as as PSW. narrative. PSW. CIP main text. Not underlined but listed in annex summary of the capital package. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FCS = fragile and conflict-affected situation; FCV = fragility, conflict, and violence; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; PSW = Private Sector Window; SALL = sustainable annual lending limit. Reporting The Bank Group’s reporting on the FCV strategy stands out for its depth and candor of analysis. The importance of the Bank Group’s crisis and FCV agenda and the adoption of the FCV strategy in 2020 have meant that man- agement has reported extensively on it. There have been regular Board updates on the Bank Group’s crisis responses, particularly its COVID-19 response and the FCV strategy’s implementation. The March 2022 Board up- date on the FCV strategy discussed the progress and challenges in addressing FCV issues and the limits to some of the Bank Group’s FCV response tools. For example, there is an increasing need for the Bank Group to engage on FCV issues in middle-income countries, but its response in these settings has been constrained by weak subnational capacity, limited concessional financ- ing, and political hesitancy in some countries to involve the Bank Group in “domestic” conflicts, among other reasons (World Bank Group 2020b). The Bank Group’s narrative reporting on its FCV strategy addresses its specif- ic CIP commitments, and, according to the validation team, it stands out among corporate reporting for its depth and candor, particularly on the challenges of operating and achieving results in FCV contexts. This reporting shows that high-quality reporting on qualitative commitments is feasible, al- The World Bank Group’s 2018 Capital Increase Package  Chapter 3 though in this case it is driven by the FCV strategy more than by the CIP and its two yes-and-no indicators. Implementation IBRD and IFC have fully implemented their crisis and FCV commitments. IBRD’s first commitment was a specific action to incorporate a crisis response into its FSF. This has been achieved with IBRD’s crisis buffer allo- cation (described in chapter 5), which essentially sets aside IBRD funds for crisis lending. IBRD’s second FCV commitment included a broad set of ac- tions to shift the Bank Group’s crisis work from response to prevention. The IFC commitments for this cluster were, first, to strengthen its partnerships and coordination on FCV approaches with the World Bank and other donors and, second, to increase IFC’s investments in high-risk FCV markets and accompany them with upstream diagnostic work and de-risking solutions. These commitments both require a broad set of actions that are not covered 32 by any indicator. However, IFC has reported on these actions in its annual FCV strategy updates. Crisis Response The Bank Group provided a surge in financing for COVID-19 and other global and regional crises. This large financing response was enabled by the CIP, IBRD’s crisis buffer, the front-loading and early replenishment of IDA funds, and certain financial innovations, including new types of sustainable devel- opment bonds and IFC’s COVID-19 fast-track facility. These crisis responses were fast, flexible, at scale, globally coordinated, and tailored to the specific needs of recipient countries (World Bank 2022k). IFC’s early response—espe- cially through the Financial Institutions Group—was mostly relevant to firms and in line with IFC’s expected countercyclical role (World Bank 2023b). The Bank Group’s COVID-19 response, in particular, assisted countries in addressing the pandemic’s health threats and social and economic impacts, while staying focused on the country’s long-term development goals (World Bank 2022k). The Bank Group’s current approach to crisis response is built on its exten- sive experience responding to earlier crises and pandemics. IEG evaluations have pointed out many ways that the Bank Group has learned from past crisis interventions, including technical lessons in pandemic response, and the suitability of various financing instruments, such as the multiphase Independent Evaluation Group World Bank Group    33 programmatic approach (World Bank 2022k). These evaluations also show that the Bank Group’s country-level crisis responses were more effective when they built on prior Bank Group engagements; for example, COVID-19 responses were more robust when they built on prior World Bank support for countries’ health and social protection systems (World Bank 2022k). In many countries, World Bank–supported social protection programs adjusted to the crises by scaling up and adding crisis response mechanisms. Another IEG evaluation found that the Bank Group was less effective in working with clients to expand fiscal buffers, strengthen institutions, and build capacity for better management of fiscal and financial crises (World Bank 2021a). The Bank Group has begun taking a longer-term perspective to pandemic preparedness, although its efforts in this area have waxed and waned over the years. The 2014–15 Ebola outbreak led to the Bank Group’s renewed focus on pandemics. The Forward Look emphasized pandemic prepared- ness, the CIP less so. However, COVID-19 led the Bank Group to increase its focus on pandemics. As part of its response, the World Bank strength- ened public health preparedness and built resilience in health, education, and social protection systems. The Pandemic Emergency Financing Facility (PEF), launched by the Bank Group in 2016 (largely in response to the Ebola outbreak), played a modest role in the pandemic response. PEF grants sup- ported countries’ COVID-19 plans, but the grant amounts were small, and the allocation of just-in-time PEF resources was slow. This was because the PEF required that an emergency be declared before World Bank teams could access funding, and this funding had to be included in a World Bank financ- ing project in order for recipient governments to use it. The Bank Group also started to take a longer-term view of pandemic preparedness. The interna- tional community has a long history of calling for increased investments in crisis preparedness after major disasters and pandemics only to see the funding and political commitment fade after the crisis’ immediate urgency passes (World Bank 2013). To help address this cycle of neglect, the Bank Group created the Financial Intermediary Fund for Pandemic Prevention, Preparedness, and Response in 2022. The fund has so far received $1.4 billion The World Bank Group’s 2018 Capital Increase Package  Chapter 3 in capital commitments, against an estimated annual need of $10.5 billion for a fit-for-purpose pandemic preparedness and response architecture (WHO and World Bank 2022; World Bank 2022d). Fragility, Conflict, and Violence The Bank Group has strengthened its approach to FCV challenges. It adopt- ed the FCV strategy (2020–25), introduced a new operational policy, and increased FCV funding, primarily through IDA’s FCV envelope. In addition, the Bank Group strengthened its partnerships with the United Nations and humanitarian agencies to coordinate responses to the humanitarian and development needs of conflict-affected countries. The World Bank has also improved its conflict and fragility analytics to help meet its commitment to greater conflict prevention, and it has revised its methodology for conflict analysis, which included making Risk and Resilience Assessments a “core diagnostic.” A recent IEG evaluation found that the Bank Group’s conflict 34 analyses have become better at identifying fragility drivers and their influ- ence on conflict and violence. This evaluation also found that World Bank investment projects in conflict-affected areas increasingly address conflict and fragility drivers but that the World Bank could do more to inform coun- try engagements with timely analyses on conflict dynamics and risks (World Bank 2021c). The PSW has helped IFC enter new markets and sectors, but it has been challenging for IFC to increase investments in FCV because of the risks, complexities, and informality of FCV environments. Taking the longer per- spective over the FY10–21 period, IFC’s long-term financing commitments to FCS have been relatively flat (averaging 5.2 percent of its total commit- ment volume and 8.6 percent of its total number of committed projects), despite IFC introducing or adapting a suite of instruments partly to target FCS, including upstream advisory services, blended finance, and country diagnostics. IDA’s PSW is IFC’s largest blended finance program and was designed to mobilize private sector investment in IDA-only and IDA FCS countries through de-risking at both the country and transaction levels. Although IFC’s business volume in PSW-eligible countries did not increase during the 18th Replenishment of IDA, the PSW has helped IFC enter new markets and sectors. More generally, nonconducive business environments and the shortage of potentially bankable projects, or projects that meet IFC standards and criteria, are constraining its attempts to scale up its business Independent Evaluation Group World Bank Group    35 in FCS, more than the lack of available finance. IFC has responded to the shortage of bankable projects by investing in upstream project development and pursuing blended finance, among other responses (World Bank 2022c). The World Bank and IFC face both internal and external challenges in sup- porting FCS that are unique to those situations. Research shows that most jobs and economic opportunities in FCS, particularly for the disadvantaged, are in the informal sector, but the Bank Group has few instruments for working directly with the informal sector. FCS rarely have conducive busi- ness environments and project sponsors with relevant experience. Moreover, loans are typically small, and transaction costs are high in FCS. It can also be hard to attract staff to these locations. For IFC, scaling up in FCS would require further adjustments to its risk tolerance, cost structure, institution- al incentives, and willingness to experiment and pilot new approaches and instruments. It would also require greater collaboration with the World Bank (World Bank 2022c). Climate Change The climate change cluster has specific measurable commitments and is aligned with other corporate strategy documents. This cluster’s six com- mitments focus on integrating climate considerations in operations and country strategies (table 3.2). The commitments, which the CIP monitored with one qualitative and four quantitative indicators, are aligned with the Bank Group’s 2016 Climate Change Action Plan (World Bank Group 2016a), IDA’s climate change commitments, and the Forward Look’s climate objec- tives. Moreover, the CIP expands the Forward Look’s climate ambitions by increasing the Forward Look’s climate co-benefit targets and expanding its focus on private sector solutions and global climate advocacy. Bank Group management has consistently reported on all CIP climate change commit- ments, using the agreed-on corporate indicators, most of which are specific, measurable, achievable, relevant, and time-bound. However, they focus on the Bank Group’s lending and do not do justice to the breadth of the Bank Group’s nonlending work on climate action. Moreover, the co-benefits The World Bank Group’s 2018 Capital Increase Package  Chapter 3 accounting methodology, which is a joint multilateral development bank (MDB) methodology, has limitations, such as not capturing the intended outcomes, only capturing projects’ ex ante intentions, and combining in- vestment and development policy operations’ co-benefits in a single metric despite underlying differences.1 36 Table 3.2. CIP Climate Change Policy Measures for IBRD and IFC Policy Measures  Commitments Indicators  Targets  For IBRD, the pack- IBRD average climate Share of climate At least 30% age will support co-benefits of at least 30% co-benefits in total average over increasing the over FY20–23, with this commitments (%). FY20–23. climate co-benefit ambition maintained or in� Ambition target of 28% by creasing to FY30, reaching maintained FY20 to an average a cumulative $105 billion, or higher in of at least 30% over 1.8 times or $45 billion more FY24–30. FY20–23, with this than if no package. ambition maintained CIP main text. Underlined or increasing to and in annex summary of FY30. the capital package. All IBRD-IFC All projects screened for IBRD: Annual 100%. projects will be climate risk. percent of opera- screened for climate CIP main text. Underlined tions screened for risk. and in annex summary of climate risk. the capital package. IFC: Annual percent of proj- ects screened for climate risk within the sectors where climate risk screening was mainstreamed. IBRD-IFC investment IBRD-IFC investment IBRD: Annual 100%. operations in operations in key emis� percent of opera- Implemented key emission- sion-producing sectors to tions screened for (yes/no). producing sectors incorporate the shadow climate risk. 100% by FY20. Independent Evaluation Group World Bank Group    37 will incorporate the price of carbon in economic Annual disclosure 100% by FY20. shadow price of analysis and to apply GHG of related GHG carbon in economic accounting, with annual dis� emissions. analysis and apply closure of GHG emissions. IFC: Annual per- GHG accounting, CIP main text. Underlined cent of eligible with annual and in annex summary of projects incor- disclosure of GHG the capital package. porating shadow emissions. carbon pricing. Annual percent of eligible projects applying GHG accounting and disclosure. (continued) Policy Measures  Commitments Indicators  Targets  In cooperation In cooperation with other Progress in Complete with other MDBs, MDBs, the Bank Group will reviewing and (yes/no). the World Bank review the methodology improving Group will review used for computing climate methodology for the methodology co-benefits with a view to computing cli- used for computing better capturing adaptation mate co-benefits climate co-benefits benefits. to improve captur- with a view to better CIP main text. Underlined ing of adaptation capturing adaptation and in annex summary of benefits. benefits. the capital package. IFC will increase Increasing share of climate Share of climate 35% by FY30. climate investments, investments to 35% by FY30 investments as 32% average including mitiga- and reaching an average a percent of LTF in FY20–30. tion and adaptation of 32% between FY20 and own-account projects, to 35% of FY30 compared with 28% commitments. commitments by in the no-capital increase 2030. Over FY19–30, scenario. the average would CIP main text. Underlined be 32%. and in annex summary of the capital package. IFC will leverage IFC will leverage World No indicator in CIP No target. World Bank policy Bank policy work and ex� implementation work (under the pand use of private sector status table. Cascade approach) solutions that cut across Limited reporting and expand the use sectors and country groups, in implementation The World Bank Group’s 2018 Capital Increase Package  Chapter 3 of private sector expand share of early-stage updates narrative. solutions that cut equity investments and across sectors and new technologies, and help country groups. countries meet their NDCs. CIP main text. Underlined and in annex summary of the capital package. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were for- mal commitments. CIP = capital increase package; FY = fiscal year; GHG = greenhouse gas; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; LTF = long-term financing; MDB = multilateral development bank; NDC = nationally determined contribution. Implementation Bank Group management has fully implemented the climate change commitments. It put internal climate commitment tracking tools in place, including climate risk screening, greenhouse gas accounting, co-benefit tracking, and adapted information technology systems, and provided 38 guidance and training to staff on complying with these commitments. All 18 country engagement documents reviewed for this validation prioritize climate action; 12 of them strongly link those actions to the country’s nationally determined contributions and national climate change strategies, and 15 include private sector solutions in the proposed work programs. The CIP’s focus on engaging the private sector in climate action has also been reflected in the Bank Group’s commitments under the Climate Change Action Plan 2021–25, and in its sector- and country-level climate strategies. IBRD and IFC met or exceeded all of the CIP’s quantitative climate change targets. The share of climate lending and investments averaged 34 percent against a minimum target of 30 percent for IBRD and averaged 32 percent against a target of 32 percent for IFC over the FY20–22 period (figure 3.1). The shares of IBRD and IFC co-benefits in total commitments reached an average of 36 percent in FY22 and have remained above the Bank Group’s CSC target of 35 percent set for the FY21–25 period. IBRD and IFC screen all investment operations in the most greenhouse gas emissions-intensive sectors for climate risk, incorporate carbon shadow prices into their econom- ic analyses, undertake greenhouse gas accounting, and disclose investments’ contribution to greenhouse gas emissions reductions. Moreover, the Bank Group has scaled up its climate change analytics through its Country Climate and Development Reports and other tools. Figure 3.1. World Bank Group Climate Finance 50 Independent Evaluation Group World Bank Group    39 Share of total commitments (%) 40 30 20 10 0 2017 2018 2019 2020 2021 2022 Fiscal year World Bank Group average climate co-benefits target IBRD climate co-benefits IFC climate investments World Bank Group climate co-benefits IBRD average target 34% IFC average target 32% Source: Independent Evaluation Group. Note: The World Bank Group Climate Change Action Plan target is to average 35 percent of the World Bank Group’s financing to have climate co-benefits over fiscal years 2021–25. IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation. Climate indicators and the systems that track them have created incentives for operational teams to expand their projects’ climate change components. Corporate indicators and targets, such as those committed to in the CIP, have acted as internal measures that hold business units accountable for achiev- ing specific climate outputs. As such, these indicators have cascaded through results agreements, incentivizing management and project teams to maxi- mize climate co-benefit volumes in their portfolios and projects. The Bank Group is boosting its adaptation efforts and enhancing some climate result measurement methodologies. The Bank Group collabo- rates with other MDBs on a harmonized climate co-benefits methodology, thereby achieving a CIP commitment. For mitigation co-benefits, the task redefined the activities that qualified as co-benefits based on sector and subsector taxonomies. For adaptation, the Bank Group developed a climate resilience rating system to complement its climate co-benefit methodology, which provides guidance to teams on developing climate-resilient projects and measuring the project’s ability to withstand natural disasters and cli- mate change impacts and build resilience among beneficiaries (World Bank 2021b). In addition, the World Bank Group’s Action Plan on Climate Change Adaptation and Resilience set an adaptation financing target for the World The World Bank Group’s 2018 Capital Increase Package  Chapter 3 Bank of $50 billion over the FY21–25 period, which is more than double the levels from the FY15–18 period (World Bank Group 2019b).2 In FY22, the World Bank’s CSC started monitoring the share of adaptation co-benefits within total climate co-benefits, aiming for at least a 50 percent share. The Bank Group’s corporate climate change indicators, such as those used in the CIP, do not assess higher-level climate outcomes. These indicators have many strengths, including being attributable, specific, measurable, achiev- able, and relevant. Moreover, the Bank Group’s climate co-benefit indicator has embedded climate considerations into Bank Group operations. However, like many other corporate results indicators, it measures inputs and pro- cesses rather than outcomes. Specifically, the climate co-benefit indicator estimates the dollar amount that the Bank Group commits to activities with potential climate change benefits. It does not measure whether funds were disbursed, nor if outputs resulted in actual climate change benefits, such as avoided emissions or increased resilience. In other words, the co-benefit 40 indicator measures the breadth of the Bank Group’s climate action rather than its depth, which reinforces a staff incentive to comply with commit- ments instead of achieving greater development impact. At the project level, climate-related indicators complement the climate co-benefit indicator. Since FY21, projects with climate finance of 20 percent or higher include a climate-related indicator to track the achievement of results over the project cycle. An IEG learning engagement showed that these indicators contain a lot of useful evidence on achieving climate change results and, with some improvements, could be used to improve corporate reporting on climate change (World Bank 2022g). Conversely, a recent IEG evaluability assessment of IFC’s climate change monitoring identified important limitations that prevent IFC from transitioning to more outcome-oriented indicators. These limitations include IFC’s weak tracking of climate change savings during project implementation or closure and the limited provision of climate change-related data from clients (World Bank 2022b). IFC has led on innovative climate solutions. It is diversifying its portfolio beyond renewables to include investments in climate-smart cities and blue finance (including blue bonds and loans for protecting clean water resources). IFC is playing a leadership role among clients, partners, and financial institutions to develop a global blue economy finance market. In 2022, IFC developed global guidelines for blue bond lending and issuances. In emerging markets, IFC is also increasing sustainability-linked financing, such as investments in so-called super green structures—that Independent Evaluation Group World Bank Group    41 is, sustainability-linked instruments that companies commit to using the proceeds from to fund green or social projects (IFC 2022c). IFC has successfully promoted green buildings through its Excellence in Design for Greater Efficiencies certification and standards process to advance energy efficiency priorities across market segments (World Bank 2023c). IEG’s climate-related evaluations have found that the Bank Group’s climate change efforts are yielding positive results despite some common challenges. An IEG evaluation found that the Bank Group’s convening on climate issues was in high demand and often successful (World Bank 2020c). This valida- tion’s synthesis of three IEG evaluations and one Evaluation Insight Note conducted after 2018 (World Bank 2018, 2022f, 2022h, 2022i) find that the Bank Group has consistently expanded its climate support, achieved ambi- tious targets, built country capacities to act on climate change, and provided proof of concept for innovative approaches. These evaluations also identified three common shortcomings in the Bank Group’s climate support—namely, (i) challenges in sustaining outcomes. For example, evaluations noted chal- lenges to the financial sustainability of municipal solid waste management projects (World Bank 2022h), and to disaster risk reduction projects which did not always ensure the necessary maintenance of infrastructure (World Bank 2022f); (ii) challenges in continuously updating staff’s specialized technical climate skills because the needs keep evolving, as in, for example, when the adoption of nature-based solutions for disaster risk reduction be- came limited by perceptions that they are too complex because they require many staff specializations (World Bank 2022f); and (iii) weak internal collab- oration, which leads to a fragmented approach. For example, an evaluation in 2018 found that, at the time, coordination and collaboration between IBRD and IFC on carbon finance was limited (World Bank 2018). In a notable exception, IFC’s climate team fostered excellent collaboration across indus- try groups on energy efficiency (World Bank 2023c). Gender The gender cluster’s CIP policy measures and commitments were aligned The World Bank Group’s 2018 Capital Increase Package  Chapter 3 with the Bank Group’s gender strategy. IBRD and IFC’s CIP gender commit- ments, indicators, and targets came directly from the Bank Group’s gender strategy, and all six commitments had quantitative indicators and targets, which facilitated reporting (tables 3.3 and 3.4). The CIP’s gender indicators relied on the flag-and-tag methodology, which only captures projects’ intent at design. They do not capture the quality, effectiveness, or outcomes of the Bank Group’s interventions. The IBRD indicators provide incentives to focus on individual projects instead of encouraging a country-driven approach to addressing gender gaps. As we will see later in this section, IBRD has fully implemented its two CIP gender commitments and exceeded its targets for these. Likewise, IFC has fully implemented its four gender commitments and has a well-organized approach to implementing the gender strategy. 42 Table 3.3. CIP IBRD Gender Policy Measures IBRD Policy Measures Commitments Indicators Targets Continuous implementa- Increase the pro� Percent of op- 55% by FY23 tion of the gender action portion of IBRD erations that are with ambition plan, with at least 55% of operations that gender tagged. maintained or IBRD operations contrib- narrow gender gaps increasing to uting to narrowing the (“gender tagged”). FY30. gender gap by FY23. CIP main text. Underlined and in annex summary of the capital package. 60% of operations with Increase in the Percent of opera- 60% by FY23 financial sector compo- share of IBRD oper� tions with financial with ambition nents narrowing gaps ations with financial sector components maintained or in access to financial sector components that include specif- increasing to services by FY23, with that include specific ic actions to close FY30. this ambition maintained actions to close gender gaps in ac- or increasing to FY30. gender gaps in ac� cess to and use of cess to and use of financial services. financial services. CIP main text. Underlined and in annex summary of the capital package. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were for- mal commitments. CIP = capital increase package; FY = fiscal year; IBRD = International Bank for Reconstruction and Development. Independent Evaluation Group World Bank Group    43 Table 3.4. CIP IFC Gender Policy Measures IFC Policy Measures  Commitments Indicators Targets IFC will quadruple the IFC aims to qua� Amount of annual $1.4 billion per amount of annual financ- druple the amount financing dedicat- year by FY30. ing dedicated to women of annual financing ed to women and and women-led SMEs by dedicated to wom� women-led SMEs. 2030. en and women-led SMEs. CIP main text. Underlined and in annex summary of the capital package. (continued) IFC Policy Measures  Commitments Indicators Targets Increase the amount of $2.6 billion in annual Amount of money $2.6 billion by annual commitments to commitments to committed to fi- FY30. financial intermediaries financial institutions nancial institutions specifically targeting specifically target� targeting women. women. ing women by 2030. CIP main text. Underlined and in annex summary of the capital package. IFC will also flag all Flagging all projects All projects with 100%. projects with gender with gender compo- gender compo- components by 2020. nent by 2020. nent flagged as CIP main text. Not applicable. underlined but listed in annex sum- mary of the capital package. IFC aims to double the Doubling the share Percent of women 50% of women share of women direc- of women directors directors IFC directors by FY30 tors that IFC nominates IFC nominates to nominates to (increase from to boards of companies boards of compa- boards. 26% baseline). where it has an equity nies where it has an investment. equity investment (from 26% currently to 50%). The World Bank Group’s 2018 Capital Increase Package  Chapter 3 CIP main text. Not underlined but listed in annex sum- mary of the capital package. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FY = fiscal year; IFC = International Finance Corporation; SME = small and medium enterprise. Reporting IBRD’s and IFC’s reporting on their CIP gender implementation has been mostly adequate. Reporting was aligned with gender strategy reporting and facilitated by existing corporate metrics on gender. IBRD has two well- defined CIP indicators that focus on improving gender project designs, but they do not capture the full scope or richness of the World Bank’s gender work. Annual CIP updates also contain meaningful descriptions of the 44 Bank Group gender strategy’s implementation, including the use of gender action plans by Regions and Global Practices. IFC’s CIP reporting framework adequately covers its four CIP gender commitments, using indicators that monitor the breadth of its actions. However, IFC’s CIP targets for three of its four CIP gender commitments are set for 2030—a distant result—whereas CSC sets annual targets and their achievements for some of the commitments. Implementation World Bank and IFC staff, management, and partners have demonstrated their commitment to the Bank Group’s gender strategy—a precondition for its success. IEG’s Mid-Term Review of the gender strategy found that it, along with its gender flag-and-tag approach, which defines a logical process for addressing a gender gap with actions, analyses, and indicators for each project, has generated attention and accountability. Specifically, the gender flag-and-tag and associated targets increased staff attention to gender is- sues, fostered accountability, and led to improvements in project design. The Mid-Term Review also found that IFC and the World Bank have collaborated well on implementing the gender strategy. The review of the strategy by GIA echoed the Mid-Term Review’s findings stating that management created incentives to ensure that processes reinforce the strategy’s aims (GIA 2020). IBRD has exceeded its target of having 55 percent of its project designs close gender gaps, reaching 90 percent of all of its operations approved in FY22. Likewise, in FY22, IBRD exceeded its target of having 60 percent of IBRD Independent Evaluation Group World Bank Group    45 project designs with financial sector components closing gender gaps in access to finance, reaching 63 percent (World Bank Group 2022a). Moreover, IBRD also made progress in developing and updating gender action plans, conducting country diagnostics, and integrating these into country plans. The close monitoring of indicators and targets has incentivized frontline units to prioritize gender issues, develop their own gender action plans, appoint gender focal points to advise operational teams, organize trainings and communities of practice, establish a knowledge repository, develop a competency framework for gender experts, and create a career path for gender experts (World Bank 2021d). IEG’s Mid-Term Review also highlight- ed IFC’s well-organized internal coordination for closing gender gaps and implementing the strategy. IFC created gender leads and focal points. Its Gender Business Group works through regional and product gender leads and coordinates with focal points in industry groups. These coordination efforts have created effective links between country-level advisory services and global programs, such as the Women’s Insurance and Tackling Childcare projects (World Bank 2021d). There were also areas where implementation of the gender strategy could have been more comprehensive. The Gender Group and other units have improved data and evidence. However, the implementation of the gender strategy was affected by the general lack of familiarity with the gender gap approach among staff, and competing requirements to integrate many other cross-cutting priorities into operational practices. Not all Regions and Global Practices were able to provide their staff with well-organized support from gender specialists to overcome these shortcomings. Similarly, the World Bank’s COVID-19 response lacked hands-on assistance from gender special- ists and did not pay enough attention to supporting gender equality (World Bank 2022k). Moreover, the gender strategy proposed a country-driven approach to narrowing gender gaps through multiple instruments acting in concert; however, in practice, implementation often took the form of stand- alone projects. IEG’s Mid-Term Review of the gender strategy concluded that Bank Group management could address these concerns by letting teams The World Bank Group’s 2018 Capital Increase Package  Chapter 3 from different Regions, Global Practices, and industry groups jointly develop country gender portfolios with greater synergies, promote knowledge gen- eration to inform country gender priorities, improve the gender capacity of staff working on gender issues, and consider new corporate gender indicators that could better assess gender outcomes and support timely course correc- tions (World Bank 2021d). The World Bank’s and IFC’s flag-and-tag approach to tracking gender com- mitments has had unintended effects on staff incentives. More specifically, this approach incentivizes teams and managers to focus on completing the tag and achieving the target indicator rather than pursuing a higher-level outcome. As a result, in some cases, project staff adjusted projects to the minimum level necessary to satisfy these indicator commitments. Likewise, the gender flagging tracks project design intentions regarding gender, but it does not adequately monitor and evaluate projects’ and country engage- ments’ implementation and outcomes (World Bank 2021d). 46 Knowledge and Convening The CIP’s knowledge and convening cluster contained six policy measures. This included two policy measures for the Bank Group, two for IBRD, and two policy measures for IFC (table 3.5), which the CIP monitored with two qualitative indicators, but no targets. This cluster’s intended outcome was for the Bank Group to improve its knowledge and convening power to ad- dress global issues, but the policy measures were not clearly defined, and its indicators did not capture the quality or effectiveness of the World Bank’s efforts in this area. IEG could not validate the degree to which the Bank Group has achieved this because of the cluster’s lack of specificity and some reporting shortfalls. More specifically, the Bank Group does not monitor the uptake, quality, and relevance of its knowledge products nor the quantity and outcomes of its convening activities. Indeed, these things are not easy to monitor, but the absence of monitoring reduces the Bank Group’s account- ability for delivering results in these strategically important areas. Independent Evaluation Group World Bank Group    47 48 The World Bank Group’s 2018 Capital Increase Package  Chapter 3 Table 3.5. World Bank Group’s CIP Policy Measures for Knowledge and Convening World Bank Group Policy Measures for Knowledge and Convening Commitments Indicators Targets The World Bank Group—Leveraging Bank Group » Help countries share experience No indicator in CIP imple- No target. knowledge and convening role for greater impact, with Cascade approach to maxi- mentation status table. including demonstration effects of implementing mize finance for development. Limited reporting in imple- the Cascade approach. » Help countries share experi- mentation updates narrative. ence on Maximizing Finance for Development. CIP main text. Not underlined but listed in annex summary of the capital package. The Bank Group—Convening the public and pri- CIP main text. Not underlined but No indicator in CIP imple- No target. vate sectors on pressing global challenges. listed in annex summary of the capital mentation status table. package. Limited reporting in imple- mentation updates narrative. The World Bank will develop SFK generation and Develop SFK generation and sharing. SFK generation and sharing Complete (yes/no). sharing to preserve and enhance its comparative CIP main text. Underlined and in annex developed and presented to advantage in this area. World Bank Group efforts summary of the capital package. the Board. will focus on sharing new research to underpin improved policy-making on emerging challenges; systematically harnessing and sharing knowledge (for example, South-South exchange) embedded in financing operations across the income spec- trum; supporting innovative approaches for data collection; and continuing to strengthen public access to development data. (continued) World Bank Group Policy Measures for Knowledge and Convening Commitments Indicators Targets Dedicate part of IBRD income to provide conces- Establish an IBRD fund that uses IBRD Annual amount of funding Implemented (yes/ sional financing GPG. surplus income to provide concession- dedicated to GPG fund from no). al financing for GPG. IBRD surplus. Monitored (no tar- CIP main text. Not underlined but get). listed in annex summary of the capital package. IFC will focus on critical mentoring and financial CIP main text. Not underlined and not No indicator in CIP imple- No target. infrastructure to support entrepreneurship and listed in annex summary of the capital mentation status table. Not innovation. package. reported. IFC will invest with players that have the poten- IFC to also invest with private com- No indicator in CIP imple- No target. tial to become regional champions and facilitate panies that have the strategy and the mentation status table. transfer of new technologies to solve development potential to become regional champi- Limited reporting in imple- issues. To scale up in this area, IFC will work more ons. mentation updates narrative. closely with the World Bank to advise and support CIP main text. Not underlined but policy improvements. listed in annex summary of the capital package. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; GPG = global public good; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; SFK = Strategic Framework for Knowledge. Independent Evaluation Group World Bank Group    49 Reporting IBRD and IFC have only partially reported their actions on knowledge and convening, which hampered IEG’s validation of this cluster’s results. Actions include IBRD’s introduction of the Strategic Framework for Knowledge (SFK) and both institutions’ efforts to focus knowledge products on core diagnostics, such as the Bank Group’s Country Climate and Development Reports and IFC’s Country Private Sector Diagnostics (CPSDs). However, CIP reporting has not covered some of the less specific policy measures in this cluster. For example, it is unclear to what extent IFC implemented the CIP policy measure to invest in companies with the potential to become “regional champions,” which refers to companies that invest in one country then expand into another emerging market. It is also unclear to what extent the Bank Group helped countries share their experiences implementing the Cascade approach and Maximizing Finance for Development (MFD).3 The Bank Group’s lack of explicit commitments made progress difficult to judge. In addition, the lack of indicators, internal databases, and results systems on knowledge and convening hampers reporting and the understanding of outcomes in this cluster. The World Bank Group’s 2018 Capital Increase Package  Chapter 3 Implementation IBRD has implemented its policy measures in the knowledge and conven- ing cluster, although their results are difficult to independently validate. IBRD created the SFK (discussed in this chapter), widely shares its data and research with the public, and set up the global public goods fund to provide concessional finance for global public goods in middle-income countries. It also provided an initial $85 million in surplus funds to this fund as capital, although it was clear that this would not be enough over the fund’s life. As the CIP document states, there should be “up to $45 million per year for poten- tial income support for [global public goods] projects” (38). The original CIP document does not define the fund’s duration nor the amount or frequency of IBRD’s annual surplus transfers. The fund continues to operate, and the provision of concessional resources for global public goods and the role of the fund is a major theme in discussions about the Bank Group’s evolution. The results of this cluster’s other commitments were also hard to validate, 50 including commitments for convening, knowledge sharing, and data innova- tion. However, although these areas did not have indicators or targets in the CIP, the Bank Group still focused on them and launched several high-profile and innovative initiatives, including on COVID-19 crisis monitoring. Knowledge The World Bank has developed various approaches to managing knowledge since the mid-1990s. It introduced the “Knowledge Bank” concept in 1996 to systematically make its knowledge available to anyone who wanted it. The World Bank then created sector networks in 1997; developed the knowledge strategy in 2010 (World Bank 2010); underwent organizational reforms in 2014 (which created Global Practices to strengthen global knowledge flows); in 2017 developed a Knowledge Management Action Plan and a central knowledge management team led by a director (now disbanded); and re- aligned staff reporting lines from Global Practices to Regions in 2019 and 2020 to ensure that global knowledge is serving country programs (World Bank Group 2021e). The SFK captures the Bank Group’s current approach to knowledge manage- ment (World Bank Group 2021e). Its diagnostics are built on IEG’s evaluation research and other Bank Group evidence on knowledge and identified ways for the Bank Group to strengthen its knowledge management. The SFK took a broad-brush approach to the question of how to manage the Bank Independent Evaluation Group World Bank Group    51 Group’s knowledge. It raised critical questions with unknown or contested answers, including questions on how to measure knowledge and formalize tacit knowledge, but it did not include an action plan. It is too early to assess the SFK’s success, but the Bank Group’s Board of Executive Directors has expressed doubts about its effectiveness in strengthening knowledge. On a related note, IEG has begun evaluating the knowledge embedded in financ- ing operations—a key part of the SFK. The Bank Group has started identifying knowledge gaps in its country en- gagement products. This assessment reviewed 18 country engagement products that have been issued since July 2021. The review shows that most of the documents identify knowledge gaps, but only 5 out of 18 do so in a systematic way by linking the gaps to the CPF’s proposed objectives and work areas. One of these 5 was the Uzbekistan CPF for FY22–26 because it identified knowledge gaps for each CPF objective and established clear links to the planned country program. Convening The Bank Group has strong convening power on global and regional issues. Effective convening is about engaging partners to drive collective action from many actors. IEG evaluations find that the Bank Group’s knowledge, global reach, and ability to link global issues with action in country programs make it a sought-after convenor on many international development topics (World Bank 2020c). The Bank Group can enhance its convening outcomes by focusing more intentionally and selectively on those topics where it has strong capacity. According to IEG’s convening evaluation, the Bank Group tends to be a more effective convenor when the convening issue aligns with the Bank Group’s core goals and mandates and is embedded in select country programs. Other factors that sustain convening over the longer term include adequate resources, established expertise and experience, and data and knowledge work that can inform and persuade partners. The Bank Group does not have the The World Bank Group’s 2018 Capital Increase Package  Chapter 3 capacity to provide strong and sustained leadership on all the topics where the international community seeks its engagement. However, corporate strategy documents do not provide clear guidance on this—they do not have a defined set of issues in which the Bank Group is well placed to convene around nor address how convening efforts link with the Bank Group’s country-driven model. When Bank Group convening has been unsuccessful, it has often been because convening efforts were spread too thin or because internal or external consensus on an approach to the topic was missing. Regional Integration Reporting The regional integration cluster has a single, broad policy measure (ta- ble 3.6). Stated simply, this cluster’s goal is to integrate countries through connective infrastructure and complementary policies and institutional 52 reforms. As a result, it largely focuses on improving cross-border ener- gy and transportation, and information and communication technologies infrastructure. The indicator used by the CIP to monitor this cluster’s com- mitment was unclear, not measurable, and limited to World Bank actions and not its intended outcomes. The CIP did not set targets for this cluster, and its reporting has been qualitative, describing the World Bank’s Africa regional integration lending portfolio; offering examples of technical assistance and advisory services, often on trade; and describing IFC and MIGA’s financing, upstream work, and advisory services. This reporting gives an idea of what types of regional integration activities the Bank Group pursues but does not provide much detail on the depth or scope of this work nor on its results.  orld Bank Group’s CIP Policy Measures for Regional Table 3.6. W Integration World Bank Group Policy Measures for Regional Integration Commitments Indicators  Targets  The World Bank Group will contin- Supporting inclu- IBRD— No target. ue to work with regional entities, sive and sustainable Progress in other development partners, and regional integration supporting the private sector to help build the through connective regional connective infrastructure in areas infrastructure and integration such as transport, information and complementary through communication technologies, and policy and institu- projects and Independent Evaluation Group World Bank Group    53 energy. The Bank Group will support tional reforms. advisory efforts on complementary policy CIP main text. Not services and institutional reforms that are underlined and and analyt- needed to ensure that gains from not listed in annex ics. regional cooperation on infrastruc- summary of the Reported in ture materialize fully, to foster growth capital package CIP imple- of businesses and create good local but recognized as mentation jobs and value addition in all partic- commitment in im- status table ipating countries in an inclusive and plementation status and imple- sustainable manner. table. mentation updates narrative. Source: Independent Evaluation Group. Note: CIP = capital increase package; IBRD = International Bank for Reconstruction and Development. Implementation The World Bank has expanded and broadened its regional integration sup- port. More specifically, it has expanded its focus beyond Africa—the Region where it has most actively and effectively fostered regional integration (World Bank 2019b). The World Bank has also expanded beyond its traditional focus on trade and infrastructure. For example, IDA’s CIP commitments address transboundary drivers of fragility and strengthen its regional crisis risk pre- paredness. IDA has also increased funding for the Regional Window of the 20th Replenishment of IDA to support regional projects. The World Bank’s two Sub-Saharan Africa Regions and its Middle East and North Africa Region joint- ly presented a regional integration strategy update to the Board in 2021. This update expanded the strategy’s focus on addressing fragility risks in Africa’s various subregions. In South Asia, the World Bank refocused its regional integration, cooperation, and engagement approach. It has also increased its engagement with regional organizations. For example, the World Bank’s COVID-19 response supported and collaborated with regional organizations, including the African Union and the Africa Centres for Disease Control and Prevention (World Bank 2022k). It also worked with the African Union to im- plement the African Continental Free Trade Area and identify trade benefits The World Bank Group’s 2018 Capital Increase Package  Chapter 3 for the African Union’s trade negotiations with individual governments (World Bank Group 2021f). The World Bank has also continued to support transport and trade connectivity through diagnostics and technical assistance in South- East Asia, Latin America, the Horn of Africa, and the Africa Continental Free Trade Area (World Bank Group 2022a). The World Bank has internal and external constraints preventing it from deepening its support for regional integration: its systems, accountability mechanisms, and incentive structures follow the country-driven model and are therefore oriented toward individual countries and not well geared for engaging across countries (World Bank 2019b). The World Bank addresses such constraints by adopting regional integration strategies and appointing regional directors to implement them, mirroring the way that country di- rectors oversee country engagements. However, it has not clarified exactly what success on regional integration looks like. There are also external con- straints. For example, regional integration projects are harder to design and 54 implement because they require external collaboration, regional champions, and strong implementation capacity among all the involved countries. Independent Evaluation Group World Bank Group    55 1  The assignment of climate co-benefits to development policy operations is problematic, although it is based on a joint multilateral development bank methodology. Because the financing provided by a development policy operation does not go to finance the reforms supported by a prior action, there is a qualitative difference in assigning a value to the climate co-benefits of a development policy operation as compared with assigning a value to an investment project. Whereas investment projects in principle have a link from the amount of financing to the supported climate actions, that is not the case for development policy operations. 2  The International Finance Corporation does not have a volume or percentage target for adaptation finance. 3  Both the Cascade approach and Maximizing Finance for Development leverage private capi- tal to maximize the impact of public financing. The World Bank Group’s 2018 Capital Increase Package  Chapter 3 56 4 | Priority Area 3: Mobilizing Capital and Creating Markets Highlights The International Bank for Reconstruction and Development (IBRD) has made limited progress in mobilizing public and private capital. IBRD’s average annual private capital mobilization from fiscal year 2019 to fiscal year 2022 was 7.4 percent, well under its target of 25 percent. The International Finance Corporation’s core mobilization ratio has been 94 percent averaged over the capital increase package period, exceeding the target of 80 percent of own-account com- mitments. The World Bank Group’s implementation of the creating markets agenda and the Cascade approach has not been systematic and has lacked oversight, metrics, and targets. IBRD intensified its domestic revenue mobilization work since 2018, but this work showed weak strategic coherence, and, internally, IBRD did not collaborate effectively. 57  This chapter covers the two clusters under the CIP’s mobilization and creating markets priority area. These include (i) creating markets and PCM and (ii) domestic revenue mobilization (DRM), which is how the Bank Group engages the public sector on taxes and other revenue sources. Creating Markets and Private Capital Mobilization The CIP’s creating markets and PCM cluster had five policy measures. These included two formal commitments that were monitored through one quan- titative and one qualitative indicator (see table 4.1), which capture the progress toward a part of the intended outcomes (namely, mobilization) and do not fully capture the newer concept of creating markets.  orld Bank Group’s CIP Policy Measures for Creating Markets Table 4.1. W and Private Capital Mobilization World Bank Group Policy Measures (PCM) Commitments Indicators  Targets  Adopting a systemat- Adopting a systemat- No indicator in No ic approach to creating ic approach to creating CIP implementa- target. markets across the World markets across the Bank tion status table. Bank Group by linking policy Group using the Cascade Limited reporting The World Bank Group’s 2018 Capital Increase Package  Chapter 4 reform, advisory, investment, approach as the operating in implemen- and mobilization to deliver system to MFD. tation updates solutions packages and CIP main text. Not under- narrative. using the Cascade approach lined but listed in annex as the operating system to summary of the capital MFD. From diagnostics to package. investments, the Bank Group instruments will be lever- aged to crowd in the private sector. The Bank Group—Growing CIP main text. Not under- No indicator in No use of private sector solu- lined but listed in annex CIP implementa- target. tions and mobilization of summary of the capital tion status table. private finance with annual package. Limited reporting Bank Group mobilization by in implemen- IBRD and IFC 1.7 times high- tation updates er in FY30 than in no-capital narrative. increase scenario. (continued) 58 World Bank Group Policy Measures (PCM) Commitments Indicators  Targets  IBRD aims to increase its IBRD will increase its mo� IBRD private mo- 25% on mobilization ratios to 25% on bilization ratio to 25% on bilization ratio. average average over FY19–30. average over FY19–30. over CIP main text. Underlined FY19– and in annex summary of 30. the capital package. IFC aims to increase its Not underlined in CIP and No indicator in No mobilization ratios to 90% not listed in annex summa- CIP implemen- target. by 2030 and reach 80% on ry of the capital package. tation status average over FY19–30. table. Reported in implementation updates narrative. The Bank Group contin- IBRD—Supporting policy Pipeline of up- No ues to implement many reforms to unlock oppor- stream projects. target. important processes and tunities for private sector Reported in CIP tools to deliver this agenda, investment. implementation focusing on Bank Group co- IFC—Scaling up private status table and ordination, upstream sector sector solutions by implementation prioritization and project » Deepening Bank Group updates narrative. development, improved collaboration for policy metrics to assess and antici- reform to eliminate pate the potential for market obstacles to private development, and new tools investment. for supporting high-risk » Using advisory services private sector projects and for upstream proj- to enhance mobilization. ect preparation and To implement IFC 3.0, IFC de-risking tools where has also put in place a new needed to build up the Independent Evaluation Group World Bank Group    59 management structure and pipeline of bankable developed a set of new projects. tools to enhance delivery. » Drawing in new private sector investors by own-account invest- ments and creating new instruments and platforms for mobili- zation. CIP main text. Not under- lined but listed in annex summary of the capital package. Source: Independent Evaluation Group. Note: The bold text in the table was underlined in the CIP document to show that these were for- mal commitments. CIP = capital increase package; FY = fiscal year; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; MFD = Maximizing Finance for Development; PCM = private capital mobilization. The CIP’s creating markets agenda involved a solutions package and the Cascade approach. These components comprise the overall narrative of MFD and are aligned with the broader directions expressed in the 2030 Agenda and From Billions to Trillions: Transforming Development Finance Post-2015 Financing for Development: Multilateral Development Finance (AfDB et al. 2015; UN 2015). The concept of a solutions package implies the use of a com- bination of tools in a mutually reinforcing way to crowd in private resources. Similarly, the Cascade approach encourages Bank Group teams to use private financing and limit the use of concessional funds (which frees up public re- sources for where they are most necessary). The CIP’s PCM cluster includes a quantitative indicator of private capital mobilized, which is a subset of the market creation agenda. Although it includes a formal target for IBRD mobi- lization, it does not include any commitments from IFC. The cluster does not contain indicators or targets for solutions packages, nor does it systematical- ly track the use of individual market creation tools. This cluster’s solutions packages combine new and established Bank Group instruments to create markets and mobilize private capital. Established instruments include the World Bank’s analytical and lending support for private sector reforms; the Bank Group’s diagnostic and strategic country The World Bank Group’s 2018 Capital Increase Package  Chapter 4 engagement products, such as Systematic Country Diagnostics and CPFs; and IFC’s investment and advisory operations. IFC has an extensive suite of new instruments that include the Bank Group’s CPSDs and IFC’s industry deep dives, both of which are mechanisms to systematically integrate private sector concerns into the Bank Group’s diagnostic and strategy work. IFC’s Creating Markets Advisory Window—another new instrument—builds local capacity, makes regulatory improvements, and supports upstream advisory work to prepare the enabling environment for PCM and develop bankable projects. The IDA PSW and other blended finance instruments also help create markets by making small amounts of concessional finance available and de-risking projects until they are attractive to the private sector. IFC’s new Anticipated Impact Measurement and Monitoring (AIMM) system (also discussed in chapter 5) assesses the likely impacts of projects on markets. 60 Reporting The CIP only made a PCM commitment for IBRD and provided illustrative projections of IFC’s PCM. The World Bank’s and IFC’s CSCs, CIP implemen- tation updates, IFC’s Strategy and Business Outlooks, and the Bank Group’s annual reports regularly report PCM data based on a common MDB meth- odology for standardized reporting of PCM. For IFC, the CIP provides figures of $175 billion in cumulative core mobilization from FY19 to FY30 alongside $220 billion in cumulative own-account investments for illustrative purpose. The CIP’s main text refers to IFC reaching a mobilization ratio of 90 percent of its own-account commitments by FY30 and averaging 80 percent over the CIP’s implementation period (World Bank Group 2018b). IFC has exceeded the illustrative projections for mobilization. Its own- account commitments have grown from $8.9 billion in FY19 to $12.6 billion in FY22, exceeding the growth of its mobilization totals, which increased from $10.2 billion in FY19 to $10.5 billion in FY22 (figure 4.1). IFC’s mobilization ratio has averaged 94 percent over the period, exceeding the 80 percent average indicated in the CIP for 2030. To meet the FY30 illustrative projections of $220 billion own-account investment and a 90 percent mobilization ratio at the end of the CIP period, IFC will need to continue to increase its own-account commitments and mobilization. IBRD has not yet met its PCM target and has emphasized data in its report- Independent Evaluation Group World Bank Group    61 ing in an inconsistent manner. IBRD reported either annual PCM ratios or multiyear PCM averages, focusing on average figures in years when PCM ratios were low. This inconsistent emphasis in reporting approach dilutes accountability. Following the capital increase in FY18, IBRD’s PCM ratio of mobilization to own-account financing decreased from 16 percent to 3 percent in FY21 but then rebounded to 9 percent in FY22, resulting in an average annual PCM of 7.4 percent between FY19 and FY22, compared with a target of average 25 percent mobilization ratio between FY19–30. Only in 2017, before the CIP, did IBRD meet its 25 percent mobilization target. FC Commitments: Own Accounts Compared with Core Figure 4.1. I Mobilization 25 140 120 Commitments (US$, billions) 20 Mobilization ratio (%) 100 15 80 10 60 40 5 20 0 0 2019 2020 2021 2022 Own account Mobilization (US$, billions) Mobilization (%) Source: Independent Evaluation Group based on International Finance Corporation’s reported data. Note: IFC = International Finance Corporation. The CIP’s market creation objectives were never fully articulated, and re- porting relied on individual examples. At the time of approval, the CIP did not articulate a framework on how the Bank Group should create markets. The World Bank Group’s 2018 Capital Increase Package  Chapter 4 IFC’s FY20–22 Strategy and Business Outlook stated that cross–Bank Group working groups are working to develop a comprehensive MFD Results Measurement Framework (IFC 2019), which would presumably include market creation, but subsequent reporting made no further reference to the framework. A 2020 Assurance Review by GIA found that the Cascade ap- proach to creating markets “is not systematically monitored and reviewed across Bank Group institutions” and that the approach has no “measurable metrics and milestones.” Without such clarity, CIP reporting on market creation policies has been vague and relied on limited case examples. This reporting was usually in CIP implementation updates, which provided ex- amples of internal collaboration, institutional changes, and market creation products. The updates also reported on the delivery of new diagnostics and strategies, such as the number of CPSDs finalized. These examples illustrate the efforts that the Bank Group has made to create markets but have a limit- ed use for judging the Bank Group’s aggregate progress. 62 Implementation Bank Group management took steps toward implementing MFD through the Cascade approach, but implementation was not systematic. GIA’s Assurance Review and the CIP’s implementation updates report several steps the Bank Group took in implementing the Cascade approach, including issuing guid- ance notes to incorporate the approach in country engagement products, providing communication and training materials, and establishing working groups. In 2020, the Bank Group established three World Bank–IFC working groups at the vice-presidential level to implement the Cascade approach focused on incentives, country programs, and operations. The Cascade ap- proach lacked oversight and clear metrics and milestones, which hampered its implementation. For example, most of its oversight committees, which were established in FY17, had still not met by FY19, diminishing the working groups’ momentum. More generally, GIA found that in the absence of sys- tematic monitoring, “most projects had no evidence of the analysis carried out by project teams in deciding not to consider private solutions to maxi- mize developmental impact.” IFC made organizational changes, and the Bank Group strengthened analyt- ical capacity; however, despite IFC’s annual reporting there is little evidence that this led to systematic operational work to create markets. IFC created global and regional upstream units to get involved much earlier in the sector Independent Evaluation Group World Bank Group    63 and project development process (IFC 2020a). In addition, IFC’s Economics Vice Presidential Unit created a series of analytic tools, such as CPSDs, which identify opportunities for market creation at the country level, and Sector Deep Dives, which present systematic overviews of sectors and subsectors that have the potential for PCM and market creation. However, in the ab- sence of a monitoring framework, there was no evidence that these efforts were systematic or successful. The GIA’s Assurance Review reached the conclusion that Bank Group diagnostics work is robust but was not clearly translated into subsequent operational actions. IFC made organizational changes that constrained or reversed earlier or- ganizational changes that were enacted to create markets. IFC’s upstream operating model was launched in 2020 and envisaged a strong role for global units in creating markets. However, in 2022, IFC carried out additional organizational changes that moved most staff from these global upstream units to regional upstream units and further merged upstream and advisory teams. There was no clear or substantive explanation for this change, except for IFC’s need for “organizational simplification” and “being closer to the client.”1 Findings by IEG and others have established that market creation tends to have gestation periods of a half-decade or longer. This calls into question the rationale for the 2022 changes, which went into effect less than three years after the initial reforms—much too short of a period to derive meaningful lessons from the 2020 changes. Similarly, the discontinuation of joint World Bank–IFC Global Practices appears at odds with the Bank Group’s emphasis on collaboration, which is particularly important for creating mar- kets. In general, frequent institutional changes, such as these, undermined the Bank Group’s ability to apply lessons from complex initiatives with long gestation periods and diluted accountability for delivering results. The Bank Group’s Cascade approach for creating markets was at odds with internal staff incentives. A primary area of concern in institutional evalu- ations is how to incentivize market creation activities because of the Bank Group’s broader staff incentive structure. Staff incentives, including promo- tions, often favor sector- and unit-specific goals over corporate goals, such The World Bank Group’s 2018 Capital Increase Package  Chapter 4 as creating markets or the Cascade approach. Furthermore, staff are incen- tivized to deliver results over a medium-time horizon, which is shorter than the long implementation times for market creation initiatives. IEG’s evalua- tion on creating markets established that “most reform efforts studied lasted more than 10 years” (World Bank 2019a, 47). It found that investment may be possible while reforms are being implemented but that there are minimum legal and regulatory requirements that need to be met. Volume and process efficiency targets focusing on the short-term disincentivize staff from focus- ing on market creation because of its longer lead times and a higher risk of financing not being approved or committed. Current measurements of capital mobilization are generally effective, but they only capture part of IBRD’s contribution to private capital flows. A 2020 IEG evaluation, World Bank Group Approaches to Mobilize Private Capital for Development, found that the Bank Group’s approach to PCM is relevant to clients and mostly effective in mobilizing private capital (World Bank 2020a). 64 The evaluation made recommendations on how to increase IBRD’s PCM, such as improving how incentives cascade down to organizational units. In addition, MDBs, including the Bank Group, have discussed developing a complementary framework to track “facilitated” or “enabled” private financ- ing, which would capture a broader range of the MDBs’ PCM activities (AfDB et al. 2017). There is no clear indication as to when this framework will be finalized or rolled out. Domestic Revenue Mobilization DRM has become an important part of the global development agenda. High fiscal deficits and high and rising debt levels in lower-income coun- tries make DRM an urgent priority in those economies (World Bank 2023d). DRM requires improving the public sector’s spending effectiveness and resource mobilization. As a result, DRM was an important theme at the 2015 International Conference on Financing for Development in Addis Ababa. It was also a prominent theme in successive IDA replenishments. Not sur- prisingly, then, both the Forward Look and the CIP have discussed the Bank Group’s role in DRM. However, as table 4.2 shows, the CIP DRM cluster’s two policy measures were vague, were written as broad statements of intent, and lacked indicators and targets, which made reporting difficult. The CIP document also mentioned illicit financial flows, but this validation did not identify any policy measures or reporting on this issue. Independent Evaluation Group World Bank Group    65 Table 4.2. CIP DRM Policy Measures for IBRD and IFC World Bank Group Policy Measures (DRM) Commitments Indicators  Targets  The World Bank has created Not underlined in CIP No indicator No target. a Global Tax Team charged and not listed in annex in CIP imple- with broadening and deep- summary of the capital mentation ening the tax base of client package. status table. countries, working closely Limited with IMF. reporting in implementa- tion updates narrative. IFC aims to support DRM Not underlined in CIP No indicator No target. by investing in local capital and not listed in annex in CIP imple- market players (such as summary of the capital mentation insurance companies and package. status table. fund managers, and so on) Not reported. and deploying innovative solutions to develop the lo- cal capital markets (including bond issuance, partial credit guarantees, and securitiza- tions). The World Bank Group’s 2018 Capital Increase Package  Chapter 4 Source: Independent Evaluation Group. Note: CIP = capital increase package; DRM = domestic revenue mobilization; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; IMF = International Monetary Fund. Reporting IBRD and IFC’s CIP reporting on DRM has been unsatisfactory. The CIP has no formal DRM commitments and no indicators to measure DRM, and the CIP’s annual reporting has only described the World Bank’s DRM work in cursory fashion. The CIP’s lack of explicit commitments and indicators on DRM, and its broad wording of DRM policy measures create monitoring challenges, and reduce management’s accountability for acting on the CIP’s DRM policy measures. More complete indicators on DRM and tax equity are feasible and are, in fact, used in the results measurement system for the 20th Replenishment of IDA. Other non-CIP reporting to the Board on the World Bank’s DRM work started only in FY22 (World Bank Group 2021c). More spe- cifically, this validation did not find evidence that IFC reported explicitly on 66 the CIP measure to support DRM by investing in local capital market play- ers and deploying innovative solutions to develop the local capital markets, although IFC did report on its development of mobilization platforms. Implementation The World Bank has intensified its DRM work since 2018 and pivoted toward tax policy. IEG’s 2023 evaluation of the World Bank’s DRM work finds that the World Bank’s support was greatest in countries with low revenue-to-GDP ratios, such as those in Sub-Saharan Africa and IDA-eligible countries (World Bank 2023d). The Global Tax Program, established by the World Bank and various donor countries in June 2018, has provided trust fund resources to increase the scale and quality of the World Bank’s DRM engagements in client countries. Separately, the World Bank also increased its use of de- velopment policy operations to support DRM during the FY16–19 period relative to the FY12–15 period. Management data suggest that IBRD gave in- creased attention to DRM and tax policy and increasingly used development policy financing (World Bank 2023d). World Bank client governments have reversed many of the tax policies supported by development policy financing loans. IEG case studies show that governments frequently reintroduced tax exemptions that development policy financing prior actions had sought to eliminate (World Bank 2023d). Reasons for these policy reversals occurred because of corruption, elite cap- Independent Evaluation Group World Bank Group    67 ture, political protests, opposition from vested national interests, and so on. The World Bank has shown limited internal collaboration and policy coher- ence on DRM. Two evaluations uncovered weaknesses in the World Bank’s internal collaboration and planning related to DRM, which included weak links between its diagnostic work and its operational work on tax reforms (SEO Amsterdam Economics 2023; World Bank 2023d). This weak link oc- curs partly because not all World Bank teams see taxation as an important development tool (SEO Amsterdam Economics 2023) but also because of the World Bank’s limited internal capacity on taxation. Interviews suggest that donor priorities in the donor-funded Global Tax Program have sometimes shaped the World Bank’s DRM work. Moreover, IEG’s DRM evaluation and the interviews for this validation show that the Bank Group’s direction and strategic coherence on DRM have varied because key managers have cham- pioned different DRM approaches, internal responsibility for tax issues has repeatedly shifted between departments, and senior management’s sup- port has not been as visible and concerted for DRM as it has been for other CIP priority areas (World Bank 2023d). The World Bank’s Equitable Growth, Finance, and Institutions Global Practice listed its DRM priority areas and approaches, including its position on redistributive fiscal policies, progres- sive tax systems, and fiscal policies for climate action in a 2021 presentation to the Board of Executive Directors (World Bank Group 2021c). However, this presentation has not yet been accompanied by an action plan. At the same time, the Bank Group’s collaboration with external partners on DRM has improved. For example, the Bank Group and the International Monetary Fund collaborate well on DRM, according to IEG’s DRM evaluation. The Platform for Collaboration on Tax, with its secretariat located at the World Bank, has contributed to this improved collaboration (SEO Amsterdam Economics 2023; World Bank 2023d). The Bank Group updated its policy on intermediary jurisdictions in July 2022 to align with leading international standards. The policy regulates IFC’s due diligence on its investee companies’ taxation in operations that use inter- The World Bank Group’s 2018 Capital Increase Package  Chapter 4 mediary jurisdictions in their holding structure. The policy is meant to curb tax avoidance and illicit financial flows in IFC projects and ensure investee companies’ compliance with national legal standards. 68 1  See https://worldbankgroup.sharepoint.com/sites/ifcupstream/SitePages/Implementation- of-organizational-changes-impacting-Upstream-and-Advisory-teams.aspx (internal document). Independent Evaluation Group World Bank Group    69 5 | Priority Area 4: Improving the World Bank Group’s Internal Model Highlights The capital increase package (CIP) emphasized efficiency com- mitments to tighten budget discipline, whereas the Forward Look emphasized putting in place the human capacity to deliver on the World Bank Group’s various strategies, including by investing in staff. Prominent CIP initiatives, such as the Agile Bank was discontinued. The International Bank for Reconstruction and Development (IBRD) has instead reported on actions to improve its internal operating model through organizational reforms, human resources initiatives, and enhanced assessment tools and policy frameworks. None of these actions were CIP policy measures or commitments. Changes by the International Finance Corporation (IFC) to its inter- nal operating model included establishing the portfolio approach, the Anticipated Impact Measurement and Monitoring system, the Accountability and Decision-Making Framework, regional vice presidencies through decentralization efforts, and a new workforce composition. Both IBRD and IFC have fully implemented the CIP’s financial sustainability commitments. This allowed IBRD to increase its crisis lending and fast-disbursing loans and contributed to IBRD’s financial sustainability by increasing its capital base and income and optimizing its balance sheet—all of which allowed IBRD to expand lending. IFC also took several steps to enhance its financial sustainability, including updating its capital adequacy framework and economic capital model, which allowed IFC to strengthen its 70   capital base. This chapter covers the CIP clusters on improving the effectiveness and financial sustainability of the Bank Group’s internal operating model. It analyzes IBRD and IFC clusters separately in the following order: (i) IBRD’s operating model effectiveness, (ii) IFC’s operating model effectiveness, (iii) IBRD’s operating model financial sustainability, and (iv) IFC’s operating model financial sustainability. The CIP’s operating model commitments do not fully capture the Forward Look’s objectives. More specifically, the CIP commitments do not compre- hensively cover the Forward Look’s emphasis on improving the scale, results, learning, innovation, staff incentives, and improvements to the Bank Group’s evaluation framework. For example, the Forward Look proposed a new human resources (HR) initiative to strengthen staff capacity—the people strategy—which the CIP did not pursue. Instead, the CIP featured efficiency commitments to tighten budget discipline, with a substantive cost savings and cost avoidance target of $1.8 billion for the FY19–30 period. To achieve this, the Bank Group implemented efficiency measures to control costs related to the workforce, corporate procurement, and global real estate and Bank Group facilities. This validation did not assess IBRD’s and IFC’s budget commitments and related savings measures because GIA will cover these in its upcoming Assurance Review of CIP commitments and their governance. Independent Evaluation Group World Bank Group    71  IP Policy Measures for Improving the World Bank Group’s Table 5.1. C Internal Model World Bank Group Policy Measures (Effectiveness) Commitments Indicators Targets Further implementing “agile” Further implementing No indicator No target. reforms and administrative sim- “agile” reforms and ad- in CIP imple- plifications to deploy World Bank ministrative simplifications mentation Group resources more efficiently. to deploy Bank Group status table. resources more efficient- Reported in ly, including through implementa- » Empowered and tion updates engaged staff seeking narrative. continuous improve- ment » Solution-driven, mobilization-driven, and adaptive approaches CIP main text. Not under- lined but listed in annex summary of the capital package. The Bank Group—Introducing a Revise staff compen- Revised Complete range of new efficiency measures, sation methodology to staff com- (yes/no). The World Bank Group’s 2018 Capital Increase Package  Chapter 5 including managing salary and control salary growth pensation workforce growth and achieving and pursue other human methodolo- savings in corporate procurement resources measures. gy adopted. and real estate and savings from CIP main text. Not under- administrative simplification and lined but listed in annex agile approaches. These mea- summary of the capital sures, in addition to the continuous package. implementation of the Expenditure Review measures, will help main- tain budget discipline.a IBRD—The new Environmental No commitment. Not No indicator No target. and Social Framework is being underlined in CIP and not in CIP imple- rolled out to help improve the listed in annex summary mentation sustainability of investments. of the capital package. status table. Reported in implementa- tion updates narrative. Source: Independent Evaluation Group. Note: CIP = capital increase package; IBRD = International Bank for Reconstruction and Development. a. This commitment is outside the validation’s scope as mentioned in chapter 1. 72 It was difficult to assess the effectiveness results from changes to the op- erating model because of a lack of measurable data. Table 5.1 shows four CIP policy measures and two commitments related to the Bank Group’s operating model effectiveness, but only one indicator related to the adop- tion of a revised staff compensation methodology, which is not aligned with institutional metrics and does not reflect the effectiveness of the imple- mented changes. The results from the IBRD and IFC implementation of this cluster proved hard to validate because some key initiatives were abruptly discontinued without explanation, many reform outcomes were unknown, monitoring and reporting were inconsistent, and there were no documented attempts to learn from the implementation’s successes and challenges. This lack of details stands in contrast to the CIP’s detailed and carefully moni- tored capital adequacy and cost reduction targets. Operating Model Effectiveness of IBRD World Bank management has taken steps during the review period to en- hance the effectiveness of IBRD’s internal operating model. These steps include the following CIP policy measures: procurement reforms, the Agile Bank initiative, and the Environmental and Social Framework (ESF). The World Bank also undertook additional reforms to improve IBRD’s internal model effectiveness that were not explicit policy measures or commitments but were described in CIP progress reports, such as trust fund reforms; the Independent Evaluation Group World Bank Group    73 decentralization of staff and decision-making, known as the global foot- print; and enhancements to its Country Engagement Framework, including increased outcome orientation. These efforts were organized in three cat- egories that are explained in this chapter: (i) organizational reforms, (ii) assessment tools and policy frameworks, and (iii) HR initiatives. Organizational Reforms World Bank management discontinued the Agile Bank initiative. Launched in 2016 and listed in the CIP as a formal commitment, the Agile Bank initiative was designed as a long-term flagship program to enhance the World Bank’s operating model and promote a culture of continuous improvement, seeking enhanced cost efficiency, operational quality, and simplified administrative processes. The initiative consumed extensive resources. For example, the initiative had engaged with approximately 1,800 staff after its first year in 2017. By the end of FY19, the initiative piloted more than 170 interventions across all Regions and, of those, mainstreamed 11 interventions into World Bank operations, mainly to simplify project cycle documents and streamline administrative processes and procedures (World Bank Group 2019a). The World Bank quietly discontinued the initiative, and, consequently, there is limited evidence of its results. CIP implementation updates from FY20 onward ceased to report on the Agile Bank initiative, and its results are unclear. This initiative used the staff engagement survey’s “engagement index” and client feedback on World Bank responsiveness to assess the initiative’s effectiveness. However, the result- ing indicators do not fully measure the initiative’s underlying objectives and show little change over time. Moreover, targets for these indicators were conservatively set in IBRD’s CSC, only slightly above their baseline values. The abrupt and quiet end of reporting on this initiative, which was the most prominent commitment in this cluster, is a missed opportunity for learning about the World Bank’s organizational change management. The World Bank’s trust fund reforms have been generally successful and are still under implementation. The World Bank started these reforms inde- The World Bank Group’s 2018 Capital Increase Package  Chapter 5 pendently of the CIP but reported on them in the CIP updates. The reforms consolidate the World Bank’s trust fund portfolio into fewer programs that fall within larger Umbrella 2.0 programs, under a single governance structure with a common monitoring and reporting framework. So far, the reforms consolidated hundreds of stand-alone trust funds into 71 umbrella programs, of which 62 have so far become active. As of the end of FY22, 88 percent of the World Bank’s trust funds are channeled through these umbrella pro- grams with the remainder being stand-alone funds. It is still too early to assess the reform’s outcomes because most are still active, but, according to management’s reporting and interviews done for this validation, reforms led to better managerial oversight of the World Bank’s trust fund portfolio, increased oversight of fundraising, and improved monitoring and reporting. The links between trust funds and operations are not always strong. Such links would enhance the strategic alignment within IBRD’s operating model. However, internal processes do not yet reflect this alignment according to 74 IEG interviews, IEG’s convening evaluation, and the World Bank’s internal reports (World Bank 2020c, 2022j). Alignment can be particularly challenging for trust fund programs in themes that cut across organizational boundaries. It is also challenging because trust fund resource allocation is not usually aligned with operational budget cycles. Assessment Tools and Policy Frameworks The World Bank’s ESF was approved in August 2016 and made operational in October 2018. The ESF was a CIP policy measure that protects people and the environment from the potentially adverse impacts from World Bank–financed projects. It uses a risk-based approach to monitor 10 social and environmen- tal standards that projects are expected to meet. This approach requires more subjective judgment than the earlier mandate-focused safeguard policies, which the ESF replaced. The World Bank rolled out the ESF with defined pro- cedures, staff guidance, implementation tools, and a new monitoring system. The World Bank also trained over a thousand staff and organized workshops on the new framework with borrowers and other stakeholders. Implementing the ESF has proven challenging. Interviews and surveys point out that after its first year of implementation, the ESF’s flexible risk-based approach was not always practiced by staff because of risk aversion (GIA 2020). Moreover, many borrowers had an insufficient understanding of the new framework. Borrowers’ steep learning curve was exacerbated by de- Independent Evaluation Group World Bank Group    75 layed ESF trainings and their need to respond to urgent COVID-19 demands (World Bank 2022k). There was also a shortage of accredited World Bank environmental and social specialists to support borrowers. A comprehensive IEG evaluation of the ESF is planned for FY25. The World Bank introduced a new Procurement Framework for investment financing. The Procurement Framework, which became effective in July 2016 and was a CIP policy measure, promotes shorter processing times for loans, applies value-for-money and fit-for-purpose principles in project designs, expands the range of procurement tools and techniques for project manag- ers, and provides hands-on implementation support to clients in FCV and low-capacity countries. According to World Bank management’s 2022 ret- rospective, the new Procurement Framework improved borrower capacity, increased the value for money of loans, streamlined procurement processes, and increased competition in contract bidding (World Bank 2022e). The Bank Group’s country strategies now frame their objectives in terms of country outcomes (World Bank 2020b). The Bank Group (2021b) updated its country engagement guidance in July 2021, in line with the Forward Look’s objective to improve the outcome orientation of country programs. The new guidance proposes a structured approach for country program strategies to set high-level outcomes that are anchored in the country’s development priorities. So far, operational units have been successful in implementing this guidance according to this validation’s review of 18 country engage- ment documents. The review shows that recent CPFs have started to focus more clearly on a few high-level development outcomes rather than out- puts and targets. However, according to IEG’s 2020 evaluation of the World Bank Group’s outcome orientation at the country level (World Bank 2020b), CPF results frameworks continue to mainly capture the effects from past operations, creating a timing mismatch between CPF’s objectives and their measurement. Furthermore, IEG’s evaluation found that country-level re- sults systems produce little value and are rarely used by operational teams. Despite this, country programs have made few discernible attempts at re- The World Bank Group’s 2018 Capital Increase Package  Chapter 5 forming these results reporting systems (World Bank 2020b). Human Resources Initiatives In 2016, the Bank Group developed and implemented a comprehensive people strategy, thereby achieving a Forward Look target. The Forward Look promoted the FY17–19 Bank Group people strategy to strengthen the Bank Group’s internal capacity by enhancing Bank Group staff’s skills, improv- ing employment conditions, and steering the organizational culture toward achieving results and innovation, among others. To develop the people strat- egy, the Bank Group reviewed workforce trends, benchmarked these trends against other institutions, and consulted more than a thousand staff and managers in over 120 engagement sessions. The Bank Group’s roll out of the strategy was accompanied by a detailed implementation plan (organized in 18 thematic clusters) and a scorecard with 42 indicators—four of which were directly associated with the CIP’s operating model effectiveness cluster. 76 IBRD’s CIP commitments were not aligned with the people strategy, nor with the spirit of the Forward Look’s HR objectives. The CIP’s operating model effectiveness policy measures did not reinforce the people strategy’s or the Forward Look’s objective to strengthen Bank Group staff capacity. By contrast, the CIP’s HR approach centered on cost efficiency measures that capped merit increases and reduced the number of high-level, mostly techni- cal GH-level positions through so-called grade optimization. The short-term duration of the Bank Group’s HR monitoring frameworks makes it hard to assess HR strategies’ effectiveness. The people strategy was designed to cover the period FY17–19, and when this period concluded, a new strategy was developed for FY20–22. Reporting on the people strategy stopped in late FY18 when a reorganization of the HR department eliminat- ed the department’s strategy reporting function. Only a few of the people strategy scorecard metrics were monitored after FY18. Similarly, changes to the staff engagement survey in FY17 combined survey questions covering budget, HR, and information technology processes and procedures into a single question: “Internal administrative processes and procedures enable me to conduct my work effectively?” which reduced the visibility of HR- specific perceptions; in FY16, the engagement survey had showed that only 32 percent of staff had a favorable perception of HR processes.1 The World Bank’s decentralization of staff to the field, or the expanding of its global footprint, has strengthened the World Bank’s responsiveness in cli- Independent Evaluation Group World Bank Group    77 ent countries. Decentralization led to benefits, such as increased trust from clients, more in-depth understanding by World Bank staff of country con- texts and political economies, increased Bank collaboration with field-based partners, and quicker and more frequent operational support, particularly in fragile, conflict-affected, and low-capacity countries. However, it had some downsides, such as reducing some aspects of global knowledge sharing. IEG’s evaluation on the global footprint also raised concerns about manage- ment using broad quantitative staffing targets to drive the decentralization without clarity on its expected outcomes. As a result, Regions and Global Practices made decisions to send staff to the field to meet staffing targets rather than to meet country needs (World Bank 2022a). IBRD management’s changes to indicators measuring staff presence in FCS made it hard to validate decentralization trends. CIP implementation updates have reported an increase in staff deployed to FCS and nearby locations since 2020. However, changes in indicator definitions made this reported increase impossible to validate. For example, the FY17–20 peo- ple strategy scorecard’s indicator reported that 723 staff were based in FCS locations,2 but the FY22 CIP implementation update’s indicator reported 738 World Bank staff working in 19th Replenishment of IDA FCS, a smaller and different set of countries. The Bank Group’s March 2022 implementation update on operationalizing its FCV strategy reported just 85 staff working in or on IDA FCS in December 2021 against a target of 100 (World Bank Group 2020b). IDA’s results measurement system tracks an FCV Facetime Index, which measures visiting and resident staff and consultant days worked in country (IDA 2022). Using different indicators at different times to measure decentralization meant that there was no way to accurately track changes to the World Bank’s global footprint in FCS. Operating Model Effectiveness of IFC Reporting The World Bank Group’s 2018 Capital Increase Package  Chapter 5 IFC’s policy commitment to improve its internal operating model’s effec- tiveness has been comprehensively reported by several reports, despite some shortcomings in the CIP reporting. As shown in table 5.1, the validation could not identify any quantitative indicators at the CIP approval stage to track IFC’s CIP commitment to enhance its internal operating model effec- tiveness. CIP updates on its progress in this cluster did not systematically report on certain effectiveness initiatives, providing varying accounts of progress from one report to another. For example, some effectiveness ini- tiatives are explained in great detail in updates from certain years but are not reported at all in other years. However, Strategy and Business Outlook updates and budget papers provide more comprehensive information on the implementation of model effectiveness initiatives. CSCs and staff en- gagement surveys also contain indicators that are indirectly related to IFC’s internal model effectiveness. 78 Implementation IFC has implemented measures to enhance the effectiveness of its inter- nal operating model in accordance with CIP mandates. The goals of these measures, as described in the CIP document, include trimming bureaucracy, simplifying approval procedures, enhancing the development impact of proj- ect portfolios, and improving organizational effectiveness. IFC’s measures to achieve these goals include the AIMM system, which identifies project development outcome claims and produces rating scores for these claims’ expected and actual results; the portfolio approach, which balances the share of the portfolio that has high expected profitability but lower develop- ment impact (which tend to support IFC’s financial sustainability), with the share of the portfolio that has lower expected profitability but higher devel- opment impact (which tend to be IDA or FCS projects); the Accountability and Decision-Making Framework and the Credit Delegation Framework, which intend to establish clear roles for IFC’s staff and operating units and allows management to make quicker decisions and support clients more efficiently; and the platform approach, which groups projects of a similar nature under a single lending envelope to allow IFC to expedite processing times, reduce transaction costs, and enhance synergies among the projects. As part of a decentralization initiative, IFC took additional measures, such as reintroducing regional vice presidents, decentralizing staff to countries and regions, and moving global upstream staff to regional departments. As Independent Evaluation Group World Bank Group    79 described in chapter 4, this last measure changed IFC’s original upstream model within only two and a half years of its inception. Despite these vari- ous decentralization efforts, the share of IFC staff based in the field has seen only marginal growth, from 55 percent in FY18 to 57 percent in FY22 (IFC 2018, 2022a). It has also defined HR-related goals in the workforce plan- ning exercise, such as reducing staff costs, improving the staff skills mix, and strengthening the staff rewards and incentives program. IFC launched voluntary and nonvoluntary separation programs during FY19 and FY20 that removed a notable share of GH-level staff. It is hard to assess IFC’s operating model effectiveness because of reporting shortcomings and the limited time IFC has been implementing these mea- sures. As discussed in this chapter, IFC’s reporting on this cluster has not been systematic. Moreover, it is still too early to evaluate the long-term out- comes of these reforms because such reforms inherently require a significant amount of time to produce results. Initial results suggest that IFC’s portfolio approach and workforce planning have had some successes. This validation’s initial review indicates that the portfolio approach has been achieving its goal of balancing IFC’s portfolio distribution. This included a notable increase in the share of project designs with high expected development outcome and low expected financial re- turns, as reported in the regular operational updates to the Board. However, this reporting does not indicate the ex post balance of IFC’s portfolio dis- tribution, and the portfolio approach’s overall effectiveness is subject to a formal evaluation.3 IFC exceeded its workforce planning target of reducing GH-level staff by 10 percent: GH-level staff decreased from 17 percent in FY18 to 13 percent in FY22—a 24 percent decrease (IFC 2022a). Nevertheless, workforce planning’s impact on staff morale and capacity is unknown be- cause the effect from losing senior talent on business performance or new employee capacity was never assessed.4 IFC’s operating model effectiveness initiatives did not achieve their goals yet, according to IFC’s CSC and staff engagement survey. The CSC and staff The World Bank Group’s 2018 Capital Increase Package  Chapter 5 engagement survey results do not show the desired improvements—at least not yet. IFC took an important step in this direction by including AIMM scores, which include market outcome scores, in its CSC. AIMM-related CSC indictors show mixed results in enhancing project development outcomes. Although the average ex ante AIMM score and the portfolio AIMM score have been improving, the ex ante AIMM scores have been below the FY18 baseline. Moreover, the CSC indicator—mandate to disbursement—failed to meet its target every year between FY18 and FY22 despite management’s claims that the Accountability and Decision-Making Framework and platform approach’s results are promising (IFC 2019). In addition, the staff engagement survey did not show an increased share of employees believing that internal administrative and operational procedures enabled high- quality services to the clients. The lower-than-expected results for IDA FCS lending would suggest that decentralization efforts have not yet translated into increased lending volumes in targeted country segments. GIA’s audit of 80 the Cascade approach showed that offering rewards to staff for adopting this approach has not been effective. This could have been expected because a limited number of one-time staff incentives is less powerful compared with incentives that lead to enduring benefits (for example, incentives that drive career advancement, such as meeting lending volume targets). Financial Sustainability of IBRD Table 5.2 shows that the CIP contained a single commitment to introduce a new FSF for IBRD. The FSF’s purpose was to align IBRD’s lending with its long-term sustainable lending capacity, ensure efficient use of IBRD’s capi- tal, and retain IBRD’s flexibility to respond to crises. The CIP monitored this commitment through a single yes or no indicator, which is clear and measur- able, and management complemented with detailed reporting, as described in this chapter. Independent Evaluation Group World Bank Group    81 Table 5.2. CIP Financial Sustainability Policy Measures for IBRD IBRD Policy Measures for FSF Commitments Indicators  Targets  Introduce an IBRD FSF with the follow- Introduce an New IBRD Complete ing objectives: IBRD FSF. FSF intro- (yes/no). » Lending remains automatically Not underlined in duced. aligned to long-term sustainable CIP but listed in capacity consistent with capital ad- annex summary equacy policy, assuming no further of the capital capital injection and continuation package. of transfers based on the IDA18 formula » Pressures for lending beyond sustainable level force trade-off decision between volume and lending terms » Efficient use of capital while retain- ing flexibility to respond to crises » 10-year SALL » A set of rules to size the lending program with automatic self-cor- recting mechanisms to stay aligned with SALL and auto- matically build up a crisis buffer, including automatic harder terms The World Bank Group’s 2018 Capital Increase Package  Chapter 5 for accessing crisis buffer, with exceptions approved by the Board on a case-by-case basis (with cap of 20% on exceptions) » Approval by the Board of Governors of the objectives and principles of the framework, as part of the capital increase resolutions » Annual Board update on lending program, SALL, and status of the buffer and Board authorizations related to the buffer Source: Independent Evaluation Group. Note: CIP = capital increase package; FSF = Financial Sustainability Framework; IBRD = International Bank for Reconstruction and Development; IDA18 = 18th Replenishment of the International Development Association; SALL = sustainable annual lending limit. 82 Reporting There has been excellent reporting on IBRD’s implementation of the CIP’s financial sustainability cluster. Annex 2 of the CIP document described IBRD’s FSF objectives and principles in detail. These principles were endorsed by the Board of Governors in April 2018. The World Bank’s Executive Directors approved the CIP’s FSF in December 2018. The FSF’s implementation approach stipulated that FSF reporting and discussions with the Executive Directors would be regular throughout the year. Consequently, IBRD’s FSF reporting has been systematic and consistent from year to year, covering the sustainable annual lending limit (SALL) estimate, potential crisis buffer sizes, financial lending terms, and down- side risk cases. The CIP’s annual reports also covered these areas and described the FSF’s implementation outcomes. Implementation IBRD fully implemented its CIP FSF measures and regularly updated the Executive Directors on its progress. Since the Executive Directors’ approval of the CIP’s FSF objectives and principles in December 2018, management has consistently updated them on IBRD’s lending program, 10-year SALL, buffer-adjusted SALL, and crisis buffer. IBRD’s process of updating the FSF was synchronized with the Board’s annual decision-making timeline in relation to budgets, loan pricing, and income allocation. In March of every year, the Independent Evaluation Group World Bank Group    83 Executive Directors discussed a paper with a preliminary update on the SALL amount, crisis buffer sizes, and the resulting buffer-adjusted SALL. In addition, since December 2020, IBRD conducted an annual midyear review to consider potential adjustment to the crisis buffer. This resulted in continuous revisions to the buffer, the SALL, and IBRD’s lending ceiling. For example, the Executive Directors approved two adjustments to the financial terms of IBRD’s FY21 lending and, thereafter, established regular pricing for countries to access the crisis buffer and adjusted maturity limits for fast-disbursing operations. Implementation of IBRD’s financial package increased IBRD’s capital base, increased its income from lending, and optimized its balance sheet.5 IBRD’s shareholders contributed $4 billion in paid-in capital as of June 2022, or 54 percent of the total agreed capital subscription, thereby increasing IBRD’s equity-to-loan ratio by 0.5 percentage points relative to what it otherwise would have been. This leaves room to expand IBRD’s lending before it reach- es its minimum equity-to-loan ratio of 20 percent. In addition, loan pricing measures, including steepened maturity premiums for IBRD clients and differentiated approaches for different country income groups, as discussed in chapter 2, have increased IBRD’s lending income by $39 million between FY19 and FY21.6 Moreover, IBRD’s income transfer to IDA became con- tingent on IBRD’s long-term financial strength.7 IBRD also took measures to optimize its balance sheet and free up resources for additional lending through active portfolio management that included loan cancellations and restructurings. In FY20, management reviewed IBRD’s capital adequacy framework and statutory lending limits and decided not to revise them. The FSF, including the crisis buffer, allowed IBRD to increase its crisis lending and provide more fast-disbursing loans. As shown in table 5.3, IBRD authorized $20 billion in crisis buffers for the FY20–23 period in response to COVID-19 and other crises, doubling the original expectation of a $10 billion crisis buffer. Actual usage of the crisis buffer was $10.6 billion in FY21 and FY22, whereas the latest buffer-adjusted SALL was $27 billion for FY23, slightly lower than expected. IBRD’s commitment volumes have been increasing since FY19, reaching a $33 billion commitment in FY22. IBRD’s The World Bank Group’s 2018 Capital Increase Package  Chapter 5 fast-disbursing loans, which performed a de facto crisis lending role because of the adjustment of the financial terms, also increased.8 IBRD’s outstanding portfolio has also been growing since FY19, while its actual allocable income levels decreased in FY21 and FY22.9 Despite these changes, IBRD’s equity- to-loan ratio stayed in the 22.6–22.8 percent range from FY19 to FY22, remaining above the policy’s minimum ratio of 20 percent. (In April 2023, the policy minimum E/L ratio was changed to 19 percent.) Rating agencies confirmed that IBRD’s FSF has protected its credit worthi- ness and AAA ratings. Moody’s Investors Service stated that IBRD’s AAA rating reflects its prudent financial policies, effective risk management strat- egy, and strong credit worthiness. According to Moody’s Investors Service (2022a), IBRD achieved this credit worthiness because of its (i) high capital adequacy, robust risk management framework, preferred creditor status, and strong asset performance; (ii) ample liquidity buffers and exceptional access to global funding markets; and (iii) large cushion of callable capital and its 84 shareholders’ willingness and ability to support it. Likewise, S&P Global (2023) highlighted similar reasons for IBRD’s credit worthiness and con- firmed that the capital increase helped increase IBRD’s lending ceiling. IBRD’s full use of the current crisis buffer and further increases to the crisis buffer may undermine IBRD’s lending capacity in FY24 and beyond. Management’s latest paper on SALL levels for FY23 indicates that IBRD will maintain its financial sustainability for the medium term. IBRD’s equity-to- loan ratio is expected to remain above the 20 percent minimum over the same period, even under plausible downside scenarios.10 The statutory lending limits, which stood at $339 billion in FY22, leave adequate room to increase IBRD’s lending further, according to the management’s paper on the FY23 SALL level.11 However, the same paper also stated that IBRD reaching the SALL ceiling by FY23 would result in a marked decline in its lending capacity for FY24 and beyond. Therefore, IBRD’s continued authorization and use of the crisis buffer may undermine future SALL and buffer-adjusted SALL amounts. BRD Lending Limits and Key Financial Sustainability Table 5.3. I Framework Performance Metrics Performance Metrics FY18 FY19 FY20 FY21 FY22 FY23 IBRD crisis buffer ap- n.a. n.a. 10,000 10,000 5,000 5,000 proved ($, millions) IBRD crisis buffer n.a. n.a. 10,000 10,000 9,500 9,500 available (including Independent Evaluation Group World Bank Group    85 carryover; $, millions) IBRD crisis buffer used n.a. n.a. 0 5,500 5,100 ($, millions) Lending ceiling ($, n.a. n.a. 38,000 35,000 37,500 36,500 millions) SALL-adj ($, millions) n.a. n.a. 28,000 25,000 28,000 27,000 Actual commitment 23,002 23,191 28,500 30,500 33,072 Actual loans outstand- 183,588 194,787 204,231 220,600 227,092 ing Actual allocable 795 1,190 1,381 1,248 806 income Actual equity-to-loan 22.1 22.8 22.8 22.6 22.8 ratio (%) Source: Independent Evaluation Group based on data from the CIP proposal, IBRD Management’s Discussion and Analysis and Financial Statements, CIP annual reports, and IBRD’s internal database. Note: CIP = capital increase package; FY = fiscal year; IBRD = International Bank for Reconstruction and Development; n.a. = not applicable; SALL-adj = buffer-adjusted sustainable annual lending limit. Financial Sustainability of IFC IFC’s FSF consists of operational and financial strategies to conserve capital. The FSF’s aim is to preserve IFC’s AAA rating, use capital efficiently, and maintain sustainable incomes to cover IFC’s operating expenses. Table 5.4 shows that the CIP monitored this commitment with a single yes or no in- dicator—continued application of the existing IFC framework with relevant enhancements—which has some shortcomings, as discussed in this chapter. Some other policy measures under CIP’s financing package but not specific to this cluster—namely, those related to loan terms, balance sheet optimiza- tion, and income transfers—are also relevant to IFC’s FSF. Table 5.4. CIP Financial Sustainability Policy Measures for IFC IFC Policy Measures for FSF Commitments Indicators  Targets  Continuing application of the existing Continue applica- Continued Implemented framework, which contains the following: tion of the existing applica- (yes/no). » Strategic capital adequacy framework IFC framework tion of the with minimum DSC ratio and improve existing » Minimum investment return targets certain aspects IFC frame- for new projects of the frame- work with work through (i) relevant The World Bank Group’s 2018 Capital Increase Package  Chapter 5 » Income-based designations formal review and enhance- » Active portfolio management and reaffirmation of ments. mobilization strategies that aim at the DSC policy optimizing balance sheet use range annually, (ii) » Economic capital allocation frame- keeping abreast work to manage exposure limits and with evolving improvement of certain aspects of standards in the framework through the following: risk and capital » Formal review and reaffirmation models, and (iii) of DSC ratio policy range at least establishment annually of more granular policy ratios. » Application of modifications to CIP main text. Not stress-testing framework and underlined but monitoring of new risk and capital listed in annex models summary of the » Establishment of more granular capital package. policy ratios Source: Independent Evaluation Group. Note: CIP = capital increase package; DSC = deployable strategic capital; FSF = Financial Sustainability Framework; IFC = International Finance Corporation. 86 Reporting IFC has reported comprehensively on its CIP FSF implementation, albeit through various types of reports. The objectives, key measures, and pa- rameters of IFC’s FSF were approved by the shareholders as part of the CIP proposal. There is no requirement to develop a single formal document that comprehensively reports on IFC’s FSF implementation. Annual CIP reports only briefly summarize this implementation, but they do provide comple- mentary information on the CIP’s financial package, such as loan terms, balance sheet optimization, and income transfers. The annual Strategy and Business Outlook reports provide information on the FSF’s implementation. There are also reports that focus on specific aspects of the FSF—such as IFC’s annual reports on financial risk management, capital adequacy, and econom- ic capital—and annual budget reports on the FSF’s income designation. IFC’s monitoring mechanism for its FSF commitments has a few short- comings. First, its FSF commitments and other relevant financing package areas are qualitative and are not accompanied by time-bound indicators. Moreover, the only indicator for IFC’s FSF implementation is not very infor- mative. This indicator—continued application of the existing IFC framework with relevant enhancements—reports only that IFC updated and enhanced its capital adequacy framework in the first quarter of FY22. This provides some information on the implementation of new FSF measures, but nothing Independent Evaluation Group World Bank Group    87 on measures that are not new. As described in this chapter, various factors, such as portfolio growth, financial returns, and capital adequacy, affect IFC’s financial sustainability. In this regard, indicators on liquidity, asset quality, capital adequacy, and financial returns for both the debt and equity port- folios would provide a more comprehensive accounting of IFC’s financial sustainability. These indicators have been comprehensively and regularly reported to the Board through quarterly Portfolio and Risk Reports. Implementation IFC has made good progress implementing all the relevant measures list- ed in its FSF. The relevant measures, which existed at CIP approval, were adequately implemented, and reported to the Board, include IFC’s active portfolio management, balance sheet optimization, pricing policies with minimum investment return targets, and income-based designations for advisory services. In FY22, IFC also updated its capital adequacy framework and economic capital model with more granular policy ratios for economic capital allocations. In FY20, IFC reviewed its stress-testing framework from FY18. The rating agencies provided positive assessments of IFC’s financial risk management. Moody’s Investors Service (2022b) highlighted IFC’s prudent capital risk management, robust information system, sophisticated stress testing, liquidity policies with clearly identified responsibilities, and regular reviews of financial sustainability policies. S&P Global (2022) also under- scored IFC’s robust and conservative financial and risk management limits, policies, and methodologies. IFC’s capital base was strengthened during the CIP period, demonstrating IFC’s improved financial sustainability. The increasing deployable strategic capital and decreasing capital utilization ratio, shown in figure 5.1, indi- cate that IFC’s financial sustainability improved. This was achieved despite lower financial return of IFC investments in recent years, as indicated by low risk-adjusted return on capital for IFC debts, internal rate of return for IFC equities, and overall net income in table 5.5. IFC’s stronger capital base The World Bank Group’s 2018 Capital Increase Package  Chapter 5 can be explained by IFC’s rebalancing of its equity portfolio, its reduced private sector investments and demand for financing in client countries, and shareholders’ capital increase approval through the CIP, as reported in the latest “Financial Risk Management and Capital Adequacy” report.12 The capital increase accounted only for a four percentage point decrease of the capital utilization ratio and four percentage point increase of the deployable strategic capital in FY22, suggesting that the capital increase’s impact on IFC’s financial sustainability was relatively small and did not alleviate IFC’s constraints to expanding its financing.13 As table 5.5 indicates, the growths of IFC long-term financing commitments, including those for IDA and FCS, and outstanding investments have been slow. That said, Moody’s Investors Service and S&P Global affirmed IFC’s overall financial sustainability and presented a stable rating outlook. CIP measures certainly contributed to this (but possibly not as much as expected). 88  eployable Strategic Capital and Capital Utilization Ratios of IFC Figure 5.1. D 100 90 80 CUR and DSC ratio (%) 70 60 50 40 30 20 10 0 2016 2017 2018 2019 2020 2021 2022 Fiscal year Historical CUR Historical DSC Source: Independent Evaluation Group based on data from International Finance Corporation 2022b. Note: CUR = capital utilization ratio; DSC = deployable strategic capital; IFC = International Finance Corporation. Table 5.5. IFC Key Financial Data FY18 Key Financial Data (base) FY19 FY20 FY21 FY22 LTF (OA plus core mobilization; $, billions) 23.3 19.1 22.0 23.3 23.2 LTF OA ($, billions) 11.6 8.9 11.1 12.5 12.6 Lending to IDA FCS ($, billions) 2.4 2.1 2.8 3.1 3.5 Mobilization ($, billions) 11.7 10.2 10.9 10.8 10.6 STF ($, billions) 7.4 5.8 6.5 8.2 9.7 Independent Evaluation Group World Bank Group    89 Outstanding investment ($, billions) 42.3 43.5 41.1 45.0 44.1 Net income ($, billions) 1.3 0.1 (1.7) 4.2 (0.5) Paid-in capital post conversion ($, mil- 2,566 2,567 19,576 20,760 21,749 lions) IFC debt portfolio RAROC (target 8%; %) 7.5 8.2 6.8 3.2 4.8 IFC equity portfolio total return ~ MSCI 0.1 Negative −6.7 −6.9 26.2 (target > 0%; %) Deployable strategic capital (%) 9 12 18 23 28 Capital utilization ratio (%) 81 78 72 67 62 Source: Independent Evaluation Group based on data from IFC 2022b, capital increase package annual reports, and IFC Strategy and Business Outlooks. Note: FCS = fragile and conflict-affected situation; FY = fiscal year; IDA = International Development Association; IFC = International Finance Corporation; LTF = long-term financing; MSCI = Morgan Stanley Capital International; OA = own account; RAROC = risk-adjusted return on capital; STF = short-term financing. 1  Instead of using the staff engagement survey, management recommended that vice presi- dential units launch dedicated client satisfaction surveys to gather more specific, targeted, and actionable feedback. 2  Internal human resources data. 3  The International Finance Corporation quarterly operations to the Board, fiscal year (FY)21, FY22, and FY23 first–second quarters (internal document). 4  The International Finance Corporation management further reports that the FY19 progress of the workforce planning was limited as the International Finance Corporation absorbed the workforce planning changes, and “change fatigue” impacted staff morale (IFC 2020c). 5  Because the financial package was not included in the scope of the validation, the Independent Evaluation Group did not validate the capital increase package (CIP) reporting numbers for its commitments. The validation also excludes budget efficiency commitments because Group Internal Audit is reviewing these measures. 6  This information was presented by CIP’s FY21 annual report. The Independent Evaluation Group did not validate this number. The CIP expected to contribute $1.6 billion from a 10 to 40 basis point maturity premium increase for loans of more than 10 years. For example, the transfer to the International Development Association of $117 million in The World Bank Group’s 2018 Capital Increase Package  Chapter 5 7  FY22 was lower than the transfer of $274 million in FY21, reflecting higher loss-provisioning requirements in FY22, according to CIP annual reports. 8  World Bank management clarified that the tagging of fast-disbursing loans was only intro- duced in FY21, when the crisis buffer was expected to be tapped, and the Board of Executive Directors approved. 9  Moody’s Investors Service annual credit analysis from February 2022 indicated that the decline in International Bank for Reconstruction and Development’s allocable income in FY21 was caused by a higher loan-loss-provisioning charge in that year compared with FY20 (Moody’s Investors Service 2022a). 10  The assumptions underlying the plausible downside scenario include portfolio credit wors- ening, faster disbursements, slower capital payments, and the adverse impact of lower interest rates on income. 11  “International Bank for Reconstruction and Development Sustainable Annual Lending Level 90 for FY23 and Size of Crisis Buffer” (internal document). The statutory lending limit is defined in IBRD’s Articles of Agreement and stipulates that the total amount of outstanding disbursed loans, participations in loans, and callable guarantees may not exceed the total value of sub- scribed capital (which includes callable capital), reserves, and surplus. 12  Undisclosed internal document. 13  According to the Independent Evaluation Group’s calculation and based on Management’s Discussion and Analysis and Consolidated Financial Statements (IFC 2022b), the CIP contributed $1.2 billion in capital by the end of FY21 and $2.2 billion by the end of FY22. Without the CIP, the capital utilization ratio would have been 70 percent and the DSC 20 percent in FY21 and 66 percent and 24 percent in FY22. Independent Evaluation Group World Bank Group    91 6 | Conclusions and Lessons This independent validation assessed the Bank Group’s CIP reporting, implementation, and its progress toward broader priorities under the CIP and the Forward Look. This chapter provides concluding remarks and summaries on (i) CIP reporting, (ii) CIP implementation of the four priority areas, (iii) CIP outcomes, and (iv) lessons for future corporate initiatives. The report’s main findings are as follows: » The Bank Group has made notable progress on achieving the CIP priorities of increasing the Bank Group’s financial sustainability, promoting global themes (including climate change), and, for IBRD, engaging with different client country segments and increasing its financing for below-GDI countries. However, the Bank Group made the least progress in creating markets, IBRD made the least progress among all its CIP priorities in mobilizing private cap- ital and domestic revenues, and IFC made the least progress in achieving its ambitious targets for increasing financing for low-income and fragile coun- tries, despite notable efforts. » The Bank Group made the most progress on implementing CIP clusters that already had clear corporate strategies or action plans, supportive internal or- ganizational arrangements, and well-defined indicators and targets. However, the Bank Group made the least progress implementing clusters where it lacked clear strategies and measurable indicators or had limited oversight, weak collaboration, perverse incentives, and overly ambitious targets. These findings reveal lessons for future corporate initiatives, such as the impor- tance of having clear strategies or action plans, explicit buy-in from senior management, and accurate reporting with meaningful indicators and realistic targets. Capital Increase Package Reporting The quality of CIP reporting varied depending on the existence of corpo- rate strategies and indicators. Using the rating criteria described in notes in 92   table 6.1, this validation finds that CIP reporting was adequate (that is, it was comprehensive, systematic, and informative) for nine CIP clusters. All these were covered by corporate strategies and aligned with corporate metrics, such as gender, FCV, climate change, financial sustainability, and serving all clients for IBRD. CIP reporting had major shortfalls in three clusters and some shortfalls in five clusters. The major reporting shortfalls were for clusters that were not covered by corporate strategies or well-established metrics. For example, IBRD’s DRM and operating model effectiveness were areas where corporate metrics were few, insufficient, or no longer collected. Table 6.1 shows that instances with inadequate reporting were usually ac- companied by limited implementation progress. Box 6.1 shows the different types of reporting shortfalls that this validation observed, including unmea- surable indicators, indicator inconsistencies, and uninformative reporting narratives. CIP reporting could have been more informative and learning oriented. Ideally, monitoring and evaluation systems should lead to learning, course corrections, and accountability. However, CIP monitoring did not promote learning or adaptive management. There were also instances of CIP report- ing that did not declare if CIP commitments were fulfilled or explain why certain initiatives were discontinued. Moreover, CIP progress reports, even when they are accurate and comprehensive, were issue- and activity-specific but contained little evidence on the CIP’s larger outcomes. Reporting also did not account for how the implementation of one priority area affected or Independent Evaluation Group World Bank Group    93 conflicted with the activities and outcomes of another. For example, increas- ing financing and PCM in FCS contradicts targets for increasing lending volumes and budget discipline.  uality of CIP Implementation and Reporting across CIP Clusters Table 6.1. Q The World Bank Adequate Group Has a Clear Corporate Plan or Strategy Indicators CIP Cluster Implementation Reporting for This Area Exist Differentiating support across client segments IBRD low- and Achieved Adequate Yes Yes lower-mid- dle-income countries IBRD Partially achieved Adequate Yes Yes upper-mid- dle-income countries IBRD small Achieved Adequate Yes Yes states IFC differentiat- Partially achieved Some For parts of the For parts of ing support shortfalls cluster the cluster Leading on glob- al themes The World Bank Group’s 2018 Capital Increase Package Chapter 6 Crisis manage- Partially achieved Adequate Yes No ment and FCV Climate change Achieved Adequate Yes Yes Gender Achieved Adequate Yes Yes Regional inte- Partially achieved Some No No gration shortfalls Knowledge and Cannot assess Some Yes, but vague No convening shortfalls Mobilizing capital and creating mar- kets World Bank Not achieved Major IFC—Partially No Group creating shortfalls World Bank—No markets IBRD private Not achieved Some No Yes capital mobili- shortfalls zation IFC private capi- Achieved Adequate Yes Yes tal mobilization Domestic reve- Not achieved Major No No nue mobilization shortfalls 94 (continued) The World Bank Adequate Group Has a Clear Corporate Plan or Strategy Indicators CIP Cluster Implementation Reporting for This Area Exist Improving the internal model IBRD effective- Cannot assess Major No No ness shortfalls IFC effective- Cannot assess Some No Partially ness shortfalls IBRD financial Achieved Adequate Yes Yes sustainability IFC financial Achieved Adequate Yes Yes sustainability Source: Independent Evaluation Group. Note: Rating criteria are as follows (see appendix A for the full criteria). Reporting: Adequate reporting: Reporting in annual CIP updates, complemented with other Board reports as relevant, was comprehensive in that it covered all or nearly all the cluster’s policy measures, backed with evidence and consistent throughout the reporting periods; had baselines when relevant; provided sufficient information to assess progress; and was candid about challenges. Some reporting shortfalls: Reporting was not as comprehensive, systematic, and informative as desir- able. Major reporting shortfalls: The CIP reporting was vague or inconsistent; claimed that targets were achieved without supporting evidence; used indicators that were not aligned with the objectives of the commitment, were not measured, or were measured with major inconsistencies; or otherwise had uninformative narratives. Implementation progress: Achieved: IBRD or IFC has fully implemented the cluster’s commitments and policy measures, as well as supporting mechanisms and incentives. Targets have been exceeded, met, or are broadly on track of being met. Partially achieved: IBRD or IFC has implemented most of the cluster’s commitments and policy mea- Independent Evaluation Group World Bank Group    95 sures, and most of the cluster’s targets have been met. Not achieved: IBRD or IFC has not implemented the cluster’s policy measures to any reasonable de- gree. Targets have not been met. Supporting mechanisms or incentives are not in place. Targets have not been met or are unlikely to be met. CIP = capital increase package; FCV = fragility, conflict, and violence; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation. Box 6.1. Issues with the CIP Design, Monitoring, and Reporting The reporting shortfalls identified in this validation are of different types and causes. Some of the shortfalls come from the capital increase package (CIP) design, others from limitations with its monitoring indicators, and still others from management’s reporting practices. The validation found five distinct issues: (i) Imprecisely defined policy measures, commitments, or indicators. This led to difficulties in assessing progress because of insufficient information. For example, qualitative yes or no indicators, such as new approach incorporated in relevant papers and reports, were sometimes reported as complete without elaboration. Many of the policy measures without commitments or indicators also fell into this category. This meant that the success of new approaches could not be assessed because there was no articulation of what success would look like. (ii) Targets with long timeframes. For example, several International Finance Corporation financing targets were set for 2030. Such lagged targets dilute staff and management’s accountability for achieving the target. Setting earlier targets or having clearer intermediate targets would ameliorate this problem. (iii) Targets without clear analyses. Or, if that analysis existed, it was not available to this vali- The World Bank Group’s 2018 Capital Increase Package Chapter 6 dation. Well-defined targets should be ambitious yet achievable. Future corporate strategies should have sufficient evidence to set meaningful targets against measurable base lines. (iv) CIP indicators not aligned with institutional metrics. Such metrics include Corporate Scorecards and International Development Association results measurement system indi- cators, among others. In one example, the CIP’s domestic revenue mobilization cluster did not use existing domestic revenue mobilization indicators. By not using existing indicators, some CIP implementation incentives were not aligned with corporate incentives, and the CIP’s implementation progress could not be monitored accurately or transparently. (v) Inconsistent reporting. For example, indicators measuring the use of the Private Sector Window changed definitions, reporting on private capital mobilization gradu- ally diminished, multiyear aggregates sometimes replaced annual lending volumes, and some major reform initiatives, such as Agile Bank and the people strategy, were quietly discontinued along with their reporting. Such inconsistent reporting made it dif- ficult to track progress and learn from past practices. Ideally, reporting should always include trends and baselines. 96 Source: Independent Evaluation Group. Capital Increase Package Implementation Implementation progress has been stronger for the CIP clusters aligned with corporate strategies and supported by indicators and targets. This validation shows that the Bank Group delivered many different major corporate com- mitments, even if it did not achieve all of its targets and objectives. Table 6.1 shows the validation’s ratings for the implementation of CIP’s commitments and policy measures.1 Eight out of the 19 CIP clusters listed in table 6.1 had satisfactory implementation progress, achieving all or most of their targets. All eight of these had a corporate strategy or plan backed up by indicators.2 The gender, climate change, and financial sustainability commitments, for example, were backed by detailed plans and metrics and organizational units in charge of implementation. Conversely, implementation progress and tar- get achievement were limited for CIP clusters that lacked a clear corporate vision. None of the three CIP clusters with limited implementation progress, and most of those with partial progress, were fully covered by a strategy. These clusters did not benefit from a strategy’s support and accountability mechanisms, which include dedicated staff, clear incentives, implementation guidance, and clearly defined indicators and targets. The CIP’s implementation progress was limited by policy measures that were written as broad statements of intent. This was the case for the com- mitments for adopting a systematic approach to creating markets across the Independent Evaluation Group World Bank Group    97 Bank Group using the Cascade approach as the operating system to MFD in the PCM and creating markets cluster, broadening and deepening the tax base of client countries in the DRM cluster, agile reforms and adminis- trative simplifications and empowered and engaged staff in the operating model effectiveness cluster, and various commitments in the knowledge and convening cluster.3 These commitments’ lack of precision and undefined indicators made them difficult to report on and, by extension, difficult to achieve (table 6.1). Policy measures without specific commitments or indica- tors amount to statements of intent or descriptions of what the Bank Group was already doing. The CIP’s design and choice of commitments and policy measures were outside this validation’s scope, yet it is hard to see the value of including commitments and policy measures that do not drive organiza- tional actions. Capital Increase Package Outcomes The CIP’s formal commitments led the Bank Group to make policy changes. The CIP not only infused capital into IBRD and IFC but also boosted the im- plementation of Bank Group priorities that already had corporate strategies and supportive internal arrangements in place. As mentioned, these priori- ties, except the operating model priority area, aligned with the Forward Look strategy. The CIP did this by raising management’s attention to its priorities and creating incentives and accountability for their achievement. The CIP also likely supplied a mandate to staff to engage clients on these priorities in policy dialogues. The CIP’s five intended outcomes achieved differing levels of success. These are listed from most successful to either least successful or those with insuf- ficient evidence for a more definitive assessment: 1. Improving the Bank Group’s financial sustainability: This is the area with the most unqualified progress. The CIP’s capital infusion and financial sustainability measures clearly strengthened IBRD’s and IFC’s capital bas- es, thereby enhancing both institutions’ financial sustainability. Although outside the scope of this validation, the CIP allowed the Bank Group to The World Bank Group’s 2018 Capital Increase Package Chapter 6 swiftly and substantially respond to the crises that affected client coun- tries after 2019. 2. Leading on global themes: The Bank Group has undoubtedly expanded its role in promoting global themes during the CIP period. This includes delivering global public goods through its concerted response to pandem- ics, FCS, climate change, and other crises. As mentioned, this response was compelled by a confluence of global crises, but the CIP also facilitated this response. 3. Differentiating support across client segments: The Bank Group continues to serve all country segments, and the country-based model continues to meet countries’ needs. The CIP led IBRD to focus more on below-GDI countries, and IBRD did meet its lending targets for these countries. IFC, for its part, has made limited progress toward its CIP financing targets for low-income and fragile countries, which, arguably, were overly ambitious 98 for reasons that are not clear to this validation. 4. Mobilizing capital and creating markets: The CIP saw limited progress in scaling up public and private resource mobilization. Although IFC has met or exceeded many of its mobilization targets, IBRD has not. This partly reflects the ambitious nature of the private resource mobilization targets for IBRD. At the same time, the Bank Group has lacked mechanisms to buttress its commitments and policy measures on DRM, PCM, and creating markets. 5. Improving the operating model’s effectiveness: IBRD and IFC have made many changes to their operating models, although not necessarily those anticipated in the CIP. The outcomes of these changes have not been assessed. The CIP’s clearest, or at least most measurable, legacy in this area is its management of workforce growth, specifically its reduction in GH-level staff. However, the reduction in high-level technical staff like- ly decreased staff capacity and morale, with unclear effects on the Bank Group’s performance. Lessons for Future Corporate Initiatives Five lessons emerged from this validation’s findings on developing, im- plementing, and reporting future corporate initiatives, and on the CIP’s continued reporting: Lesson 1: Success was greatest when corporate initiatives focused the Bank Independent Evaluation Group World Bank Group    99 Group on areas with buy-in. Senior leadership’s buy-in and support are a necessary condition for the successful implementation of corporate initia- tives. Many times, senior leadership demonstrates its buy-in by promoting corporate strategies or action plans, organizational champions, and changes to the Bank Group’s operating model. Shareholders could help increase the likelihood of success by ensuring that future policy measures are backed by a clear strategic vision, a conducive organizational model, and meaningful indicators and targets. Lesson 2: Good indicators, with baselines and targets, create clarity, foster accountability, and contribute to a strategy’s sustained implementation. The implementation of some CIP commitments and policy measures lacked continuity. As stated in chapter 5, several CIP policy measures once con- sidered important were discontinued when the senior champions that had backed them departed. However, this did not occur for commitments that were guard railed by measurable indicators and targets. Core corporate indi- cators and targets can be blunt tools (see lesson 4), but they make required actions and reporting clear, become embedded in results agreements, compel business units to follow through on these issues, and ensure the imple- mentation’s continuity in the face of changes to senior management and corporate priorities. In contrast, policy measures that did not link to clear in- dicators and targets had little accountability and sometimes lost momentum. Good corporate indicators are clear and measurable, cover both the volume and quality of the Bank Group’s work, align with intended outcomes and corporate monitoring frameworks, create incentives for staff to pursue the desired results, and have a reasonable level of ambition and scale to meet the underlying development challenges. Lesson 3: Indicators should be aligned to commitments, and indicator monitoring should be grounded in routine operational processes. IBRD mon- itored its DRM policy measures with a broad tax-to-GDP measure that did not capture the measures’ intended outcome, which would have required a more granular indicator on tax policy. IFC originally committed to financing targets for above- and below-GDI countries and small states, but IFC 3.0 cre- The World Bank Group’s 2018 Capital Increase Package Chapter 6 ating markets strategy focused more on financing in IDA and IFC countries rather than middle-income countries and UMICs, and IFC’s operational pro- cesses did not distinguish countries based on GDI. IFC therefore revised its commitments starting in 2020 into a simplified reporting framework focused on IDA and IFC countries. Looking beyond the CIP, reporting requirements multiply with the addition of new corporate initiatives and frameworks. Ensuring alignment between commitments and indicators and aligning indi- cators with those of existing corporate initiatives, systems, and frameworks will simplify the Bank Group’s reporting processes and ensure that corporate incentives are aligned. Lesson 4: Corporate indicators are a blunt tool for capturing policy measure outcomes. Corporate indicators capture the Bank Group’s actions, processes, and outputs but do not capture what outcomes these actions led to or how policy measures interacted across clusters. This is because corporate indica- tors focus on activities and outputs that are under the Bank Group’s control. 100 Although useful from an accountability perspective, this carries the risk that corporate indicators may perfectly measure the trees while ignoring the forest. Some corporate indicators (such as the climate co-benefit and gen- der tagging indicators) have become burdensome for operational teams by diverting their attention from improving outcomes to complying with inter- nal requirements. To improve corporate indicators, the Bank Group could tap into their data-rich project monitoring and evaluation systems to develop metrics and assessments that better capture ongoing and ex post results. The Bank Group could also combine indicator-based reporting with periodic deep dives that focus on outcomes. Lesson 5: Report with candor. CIP reporting narratives were sometimes vague, uninformative, or inconsistent. However, CIP reporting on global themes often had more detail and candor and, uncoincidentally, had more implementation success. Honest and accurate reporting on implementation challenges enables the organization to learn and adjust. As such, future reporting would benefit from greater candor on progress, challenges, and trade-offs. Management and Executive Directors may want to reflect on what signals they give to business units that report candidly on their successes and failures. Independent Evaluation Group World Bank Group    101 1  The rating criteria are shown in appendix A and are summarized in notes in table 6.1. The ratings are for the capital increase package’s implementation, not its outcomes. 2  Indicators can be a double-edged sword for driving action. These indicators create powerful internal incentives for staff to meet thematic targets; however, they may incentivize teams to focus on fulfilling lower-level targets rather than higher-level outcomes or to take credit for things they were already doing but did not report. Therefore, it is important to go beyond indicators when assessing outcomes. 3  Including new research to underpin improved policy making on emerging challenges, sys- tematically harness and share knowledge, support innovative approaches for data collection, help countries share experience with the Cascade approach, and so on. The World Bank Group’s 2018 Capital Increase Package Chapter 6 102 Bibliography AfDB (African Development Bank), ADB (Asian Development Bank), EBRD (European Bank for Reconstruction and Development), EIB (European Investment Bank), IDB (Inter-American Development Bank), IMF (International Monetary Fund), and World Bank Group. 2015. 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Methods Framework and Process The validation started by identifying the formal commitments and policy measures of the capital increase package (CIP). The CIP text set out 38 for- mal commitments: specific actions with targets that the World Bank Group was to be held accountable for pursuing. The Independent Evaluation Group (IEG) identified the formal commitments as those measures the original CIP document text underlined, mentioned with a target, or listed in the annex summary of the CIP and those measures listed in the annual CIP imple- mentation updates status tables, along with indicators, targets, and results (World Bank Group 2019, 2020, 2021, 2022). The CIP text also discussed 49 policy measures, important or critical actions the Bank Group would take to achieve the CIP priorities. Appendix B reproduces the complete detailed list of these commitments, policy measures, indicators, and targets; chapters 2–5 include tables with the relevant parts hereof. The World Bank Group’s 2018 Capital Increase Package Appendix A The validation used a systematic framework, theory of change, and process. The theory of change distinguished between actions, outputs, and outcomes (figure A.1). As shown in table A.1, the assessment focused on three dimen- sions, each with a defined scope and guiding question: (i) the adequacy of management’s reporting, (ii) the implementation of policy measures, and (iii) progress on the results and outcomes (both expected and unexpected). The validation assessed the reporting and implementation using three-point scales—namely, satisfactory, some shortfalls, or unsatisfactory reporting and achieved, partially achieved, or not achieved on implementation. In practical terms, the validation process followed the specific steps: 1. Identified CIP’s commitments, policy measures, and intended outcomes. 2. Developed a theory of change (figure A.1) that linked inputs, outputs, and intermediate and final outcomes, identifying five CIP outcome areas. 3. Organized these into 12 thematically similar clusters. The clusters com- bined the International Bank for Reconstruction and Development (IBRD) 112 and the International Finance Corporation (IFC) wherever feasible and separated them whenever the policy measures diverged substantially. 4. Gathered and reviewed evidence using the sources described in this ap- pendix. 5. Assessed the quality of reporting, the implementation of policy measures, and progress on outcomes. 6. Quality assured the findings from each cluster within the validation team and in discussions with the validation’s technical advisors and manager. 7. Rated each cluster (or parts of clusters in some cases) on implementation progress and reporting. Table A.1 shows the scope of the ratings. The ratings were quality assured and tested for consistency across clusters through iterative discussions within the validation team, its advisors, and IEG managers. 8. Identified patterns across clusters related to reporting shortfalls, imple- mentation progress, and outcomes. 9. Derived lessons for designing and reporting on other corporate initiatives and for the continued reporting on CIP. Figure A.1. Theory of Change Independent Evaluation Group World Bank Group    113 Source: Independent Evaluation Group. Note: Blue boxes are areas inside the assessment’s scope, and green boxes are issues outside the scope. CIP = capital increase package.  imensions of the Independent Evaluation Group’s Validation Table A.1. D Assessment Dimensions Scope of the Assessment Assessment Questions Relevance and Alignment of reporting with the scope To what extent has man- quality of report- and spirit of the objectives, policy agement’s reporting on ing measures, and commitments in the the CIP been relevant and Forward Look and CIP. adequate? Adequacy of the reporting content and metrics.  Implementation Extent to which the World Bank Group To what extent has the Bank of policy mea- has effectively implemented the policy Group implemented the sures  measures outlined in the CIP and the CIP’s policy measures? reasons for this. The extent to which the Bank Group has implemented complementary organizational changes.  Progress toward The degree to which the Bank Group What has been the Bank outcomes  has achieved or is on track to achieve Group’s progress toward expected outcomes from the imple- achieving outcomes related mentation of CIP policy measures; to the CIP’s priorities and reasons and contextual factors for the policy measures and the noted progress. spirit of the Forward Look, The degree to which implemented CIP and how have CIP mea- The World Bank Group’s 2018 Capital Increase Package Appendix A policy measures are leading to other sures contributed to this outcomes than those reported on progress? directly and the reasons for this.  Source: Independent Evaluation Group. Note: CIP = capital increase package. The rating criteria were as follows. First, the rating of the relevance and quality of reporting looked at how the reporting aligned with the scope and spirit of the objectives, policy measures, and commitments in the Forward Look and the CIP and at the adequacy of the reporting content and metrics. » Adequate reporting: Reporting in annual CIP updates, complemented with other Board reports as relevant, was comprehensive in that it covered all or nearly all the cluster’s policy measures, backed with evidence and consistent throughout the reporting periods, had baselines when relevant, provided sufficient information to assess progress, and was candid about challenges. 114 Content of reporting was aligned with the scope and spirit of the objectives, policy measures, and commitments in the Forward Look and CIP. » Some reporting shortfalls: Reporting in annual CIP updates and com- plementary Board reports was not as comprehensive, systematic, and informative as desirable. For example, it did not cover some of the cluster’s policy measures, was overly anecdotal, or the metrics used had inconsisten- cies. » Major reporting shortfalls: The CIP reporting was vague or inconsistent; claimed that targets were achieved without supporting evidence; used indi- cators that were not aligned with the objectives of the commitment, were not measured, or were measured with major inconsistencies; or otherwise had uninformative narratives. Second, the validation rated the extent to which IBRD, IFC, or the Bank Group, as applicable, has implemented the CIP’s commitments and policy measures and complementary organizational changes, such as supporting mechanisms and incentives: » Achieved: IBRD or IFC has fully implemented the cluster’s commitments and policy measures, including any reasonable complementary organizational changes, such as supporting mechanisms and incentives. Targets have been met or are broadly on track of being met. Independent Evaluation Group World Bank Group    115 » Partially achieved: IBRD or IFC has implemented most of the cluster’s com- mitments and policy measures, and most of the cluster’s targets have been met. » Not achieved: IBRD or IFC has not implemented the cluster’s policy mea- sures to any reasonable degree. Supporting mechanisms or incentives are not in place. Targets have not been met or are unlikely to be met. » Cannot assess: In some cases, the validation had insufficient evidence on the implementation of the cluster’s commitments and policy measures to confi- dently arrive at a rating. In other cases, the policy measures were so unclearly defined that the validation lacked a clear basis for rating. Evidence Sources and Analysis This validation is based on management’s regular reporting, complemented with additional evidence from IEG evaluations and technical discussions with counterparts. Management has reported extensively on the CIP and Forward Look implementation through CIP and Forward Look implemen- tation updates to the Board of Governors, Corporate Scorecards, Strategy and Business Outlooks, and Board reports on individual priority areas of the CIP and Forward Look. It has reported the CIP’s financial aspects in budget papers and IBRD’s Financial Sustainability Framework reporting. The vali- dation compiled all of this reporting, resulting in a carefully selected library of over 120 relevant reports and documents covering the period fiscal years 2016–22. The library included 25 IEG evaluations and the Management Action Record’s reporting on the results from implementing these evalua- tions’ recommendations. The validation used text analytics to identify the relevant sections of the documents in this library. Further, the validation reviewed 18 country engagement documents approved since July 2021 to gather evidence on the implementation of the updated Systematic Country Diagnostic and country engagement guidance. Finally, the validation con- The World Bank Group’s 2018 Capital Increase Package Appendix A ducted semistructured interviews and technical discussions with business units in charge of reporting and other counterparts to gather additional data, information, and perspectives. All of this evidence informed review of each cluster in chapters 2–5. The validation used the cluster-level findings to identify broader patterns. The validation team analyzed the findings of all clusters to identify com- mon reporting shortfalls and factors that could have potentially enhanced or reduced the Bank Group’s ability to achieve its targets. The validation developed a typology of reporting shortfalls, mapped them to each cluster, and looked for patterns in the distribution of these shortcomings. IEG also rated the implementation and progress toward outcomes of each cluster and mapped out the factors that were present in each case and might have influ- enced the progress and results achieved. This analysis is shown in chapter 6. 116 Limitations The assessment has a few limitations stemming from its underlying evi- dence sources. The status of implementation of a few policy measures was unclear because of shortfalls in management’s reporting. More importantly, the outcomes from implementing the policy measures were often not clear. Management’s reporting has rarely covered outcomes. This is because most policy measures are framed as actions or outputs, and reporting has, there- fore, focused on actions taken more than on what outcomes emerged from these actions. IEG evaluations have covered outcomes, but recent IEG eval- uations are not available for all priority areas. The report covers the priority areas with uneven depth because of these evidence gaps. References World Bank Group. 2019. “Update: The Forward Look and IBRD-IFC Capital Package Implementation.” Development Committee Report DC2019-0003/P, World Bank Group, Washington, DC. World Bank Group. 2020. “IBRD-IFC Capital Package and the Forward Look: Implementation Update.” Board Report 153591, World Bank Group, Washington, DC. World Bank Group. 2021. IBRD-IFC Capital Package and the Forward Look: Independent Evaluation Group World Bank Group    117 Implementation Update. Washington, DC: World Bank Group. World Bank Group. 2022. “IBRD-IFC Capital Package and the Forward Look: Implementation Update.” Board Report 177341, World Bank Group, Washington, DC. Appendix B. Capital Increase Package Policy Measures and Commitments This appendix lists all of the policy measures, commitments, indicators, and targets of the capital increase package (CIP) within the scope of this vali- dation. Chapters 2–5 reproduce the relevant sections of the material in this appendix. The validation used the following sources to arrive at these tables: » Policy measures: This column presents extracts from the CIP document. The column maintains the CIP’s wording as much as possible, except for very light editing to reduce redundancies within the table. » Commitments: This column presents the CIP’s formal commitments as defined in the CIP’s main text, the CIP’s annex summary, or the annual CIP implementation update status tables. The column also specifies the section of the CIP from which the text of the commitment was extracted, and indi- The World Bank Group’s 2018 Capital Increase Package Appendix B cates whether the text was underlined. » Indicators: As defined in the CIP implementation update status tables. This column also provides information on the availability of reporting in CIP updates. » Targets: As specified in the CIP’s main text, annex summary, or the annual CIP implementation update status tables. 118 Capital Increase Package Policy Measures, Commitments, Indicators, and Targets Used in This Report  ifferentiating IBRD Support across Client Segments for Table B.1. D Countries below Graduation Discussion Income IBRD Policy Measures (below GDI) Commitments Indicators Targets IBRD will prioritize Prioritize IBRD support IBRD financ- 100% replacement support to IDA gradu- to IDA graduates and ing for recent of IDA financing ates and new blends, new blends aiming IDA graduates for IDA graduates. aiming to make avail- to make available relative to IDA able resources to fully resources to fully re- financing before replace IDA financing place IDA financing for graduation. for graduates. graduates. Limited report- CIP main text. ing. Underlined and in annex summary of the capital package. IBRD will increase non- Aim for a gradual and Percent of 70% by FY30. crisis lending to MICs linear rise in IBRD financing to Average share of below GDI. share of noncrisis lend- countries below 67% over FY19–30. ing to countries below GDI. GDI. CIP main text. Independent Evaluation Group World Bank Group    119 Underlined and in annex summary of the capital package. Increase cumulative $260 billion cumula- No indicator in $260 billion over IBRD financing to be- tive IBRD financing to CIP implementa- FY19–30 in nomi- low-GDI countries. below-GDI countries tion status table. nal terms. over FY19–30 in nomi- Reported in nal terms, $110 billion, implementation or 70%, more than if no updates narra- package. tive. CIP main text. Not underlined but listed in annex summary of the capital package as “illustrative dollar numbers.” (continued) IBRD Policy Measures (below GDI) Commitments Indicators Targets Higher SBL increase for Higher SBL increase Higher SBL Implemented countries below GDI. for countries below the increase for (yes/no). GDI. below-GDI CIP main text. than above-GDI Underlined and in countries intro- annex summary of the duced. capital package. Price discount for be- Price discount for Price discount Complete low-GDI countries, with below-GDI countries for below-GDI (yes/no). blends and recent IDA and exemptions for countries and graduates exempted blends and recent IDA exemptions from the price increase. graduates from the for blends and price increase. recent IDA CIP main text. graduates im- Underlined and in plemented. annex summary of the capital package. Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FY = fiscal year; GDI = graduation discussion in- come; IBRD = International Bank for Reconstruction and Development; IDA = International Development The World Bank Group’s 2018 Capital Increase Package Appendix B Association; MIC = middle-income country; SBL = single borrower limit. 120  ifferentiating IBRD Support for Countries above Graduation Table B.2. D Discussion Income IBRD Policy Measures (above GDI) Commitments Indicators Targets There will be a sys- Systematic analysis and as- SCD and Implemented tematic analysis and sessment of the key elements country (yes/no). assessment of the key of the IBRD graduation policy engagement elements of the IBRD reflected in CPFs and updated guidance graduation policy, in Performance and Learning updated, reflected in CPFs and Reviews of above-GDI coun- and capital updated in Performance tries. New IBRD activities package and Learning Reviews. will have a primary focus on agreement interventions to strength- reflected in en policies and institutions new CPFs for required for sustainable IBRD above-GDI graduation. Interventions will countries. be focused on innovative solutions for boosting shared prosperity, delivering GPGs, and creating knowledge. CIP main text. Underlined and in annex summary of the capital package. The policy package Provide countries above the No indicator $125 billion would enable IBRD to GDI $125 billion cumulative in CIP imple- cumulative provide countries above lending over FY19–30 in nom- mentation lending (non- the GDI $125 billion inal terms, or $40 billion (45%) status table. crisis) over cumulative lending over more than without a package. Not report- FY19–30 Independent Evaluation Group World Bank Group    121 FY19–30, or $40 billion CIP main text. Underlined ed. in nominal (45%) more than without and in annex summary of the terms. $40 bil- a package. It would also capital package as “illustrative lion, or 45%, allow lending to the dollar numbers.” more than if above-GDI countries for no package. crisis response (which Combined would be excluded from with mobili- the lending share target). zation from private sector, the increase would reach $50 billion. Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; CPF = Country Partnership Framework; FY = fiscal year; GDI = graduation discussion income; GPG = global public good; IBRD = International Bank for Reconstruction and Development; SCD = Systematic Country Diagnostic.  ifferentiating IBRD Support across Client Segments for Small Table B.3. D States IBRD Policy Measures for Small States Commitments Indicators Targets IBRD base allocation Double IBRD base allo- Base allocation for Complete for small states will cation for small states, small states doubled. (yes/no). be doubled, subject subject to prudential Reporting incon- to prudential limits. limits. sistency. Initially, CIP main text. Underlined results were reported and in annex summary of aggregated by IDA the capital package. cycle, and since fiscal year 2020, annual lending volumes were reported. Small states will be Exempt small states Small states are Complete exempted from the from the IBRD price exempt from capi- (yes/no). proposed maturity increase. tal package pricing premium increase. CIP main text. Underlined increase. and in annex summary of the capital package. The World Bank Group’s 2018 Capital Increase Package Appendix B Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; IBRD = International Bank for Reconstruction and Development; IDA = International Development Association. 122 Table B.4. Differentiating IFC Support across Client Segments IFC Policy Measures Commitments  Indicators  Targets  Expand commit- Expand commitments in Percent of 40% of all commit- ments in IDA and IDAandFCScountries. own-account ments by FY30, FCS countries.  Not underlined in CIP but commitments averaging 32.5% over listed in annex summary in IDA17 FCS FY19–30.  ofthecapitalpackage.  countries.  Use the IDA PSW Use replenished PSW re- Percent of 15–18% by FY26; to substantially sources to increase share total annual 15–20% by FY30.  increase own- of IFC commitments in commitments account annual low-income IDA and IDA to low-income commitments in FCS countries. IDA17 and FCS LIC IDA17 and IDA CIP main text. Underlined countries.  FCS countries.  and in annex summary of the capital package.  Selective private Selective private sector Adoption of Complete (yes/no).  sector invest- investments in UMICs new additional- ments in UMICs by following a rigorous ap- ity framework.  IFC, with rigor- proach to additionality. ous additionality Not underlined but rec- assessment and ognized as commitment focus on region- in CIP implementation al partnerships, status tables.  frontier regions, financial stability, and global public Independent Evaluation Group World Bank Group goods.  Promote a regional Promotion of regional New approach Complete (yes/no).  approach to invest- approach to IFC invest- incorporated ments in middle- to ments in middle- to in relevant upper-middle-in- upper-middle-income papers and come small states small states and lever- reports. and aim to lever- aging of de-risking tools age the use of for the lower-income and de-risking tools for FCV ones. the lower-income CIP main text. Underlined and FCV ones.  and in annex summary of the capital package.  Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FCS = fragile and conflict-affected situation; FCV = fragility, conflict, and violence; FY = fiscal year; GDI = graduation discussion income; IDA = International Development Association; IDA17 = 17th Replenishment of IDA;IFC = International Finance Corporation; LIC = low-income country; PSW = Private Sector Window; UMIC = upper-middle-income country. 123 124 The World Bank Group’s 2018 Capital Increase Package Appendix B Table B.5. World Bank Group Global Themes: Crisis Management and Fragility, Conflict, and Violence World Bank Group Policy Measures for Crisis Management and FCV Commitments Indicators  Targets  Enhanced IBRD’s crisis response Incorporate crisis response into IBRD Crisis buffer introduced. Complete (yes/no). capacity incorporated in the Financial Financial Sustainability Framework. Annual approved amount Monitored. Sustainability Framework. CIP main text. Underlined and in annex sum- of crisis buffer and result- mary of the capital package. ing buffer-adjusted SALL level. IFC to strengthen partnerships with Strengthen IFC partnership with the World IFC’s FCS strategy inte- Implemented (yes/no). the World Bank and others to ensure Bank and others to ensure a coordinated grated into World Bank a coordinated approach to crisis man- approach to crisis management and FCV. Group FCV strategy. agement and FCV. CIP main text. Underlined and in annex sum- Reported in implementa- mary of the capital package. tion updates narrative. Building on the Global Crisis Strengthened response to national, regional, No indicator in CIP imple- No target. Management Platform, the Bank and global crises. Focus on preventing esca- mentation status table. Group proposes to strengthen its lation of FCV situations and their spillover. Limited reporting in efforts to support FCV situations, with CIP main text. Underlined and in annex sum- implementation updates a view to reinforcing country, regional mary of the capital package. narrative. and global stability, and development. Strong emphasis on crisis prevention. (continued) World Bank Group Policy Measures for Crisis Management and FCV Commitments Indicators  Targets  IFC’s upstream diagnostic work to Increasing IFC investments in high-risk FCV No indicator in CIP No target. guide its investments in high-risk FCV markets accompanied by upstream diag- implementation status markets and implementation of spe- nostic work and implementation of specific table. Limited reporting in cific de-risking solutions such as PSW. de-risking solutions, such as PSW. implementation updates CIP main text. Not underlined but listed in narrative. annex summary of the capital package. Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FCS = frag- ile and conflict-affected situation; FCV = fragility, conflict, and violence; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; PSW = Private Sector Window; SALL = sustainable annual lending limit. Independent Evaluation Group World Bank Group    125 126 The World Bank Group’s 2018 Capital Increase Package Appendix B Table B.6. World Bank Group Global Themes: Climate Change World Bank Group Policy Measures for Climate Change Commitments Indicators  Targets  For IBRD, the package will support IBRD average climate co-benefits of Share of climate co-benefits in At least 30% average over increasing the climate co-benefit at least 30% over FY20–23, with this total commitments (%). FY20–23. target of 28% by FY20 to an average ambition maintained or increasing to Ambition maintained or high- of at least 30% over FY20–23, with this FY30, reaching a cumulative $105 bil- er in FY24–30. ambition maintained or increasing to lion, 1.8 times or $45 billion more than FY30. if no package. CIP main text. Underlined and in annex summary of the capital package. All IBRD-IFC projects will be screened All projects screened for climate risk. IBRD: Annual percent of opera- 100%. for climate risk. CIP main text. Underlined and in annex tions screened for climate risk. summary of the capital package. IFC: Annual percent of projects screened for climate risk within the sectors where climate risk screening was mainstreamed. (continued) World Bank Group Policy Measures for Climate Change Commitments Indicators  Targets  IBRD-IFC investment operations in key IBRD-IFC investment operations in key IBRD: Annual percent of opera- 100%. emission-producing sectors will in- emission-producing sectors to incor- tions screened for climate risk. Implemented (yes/no). corporate the shadow price of carbon porate the shadow price of carbon in Annual disclosure of related 100% by FY20. in economic analysis and apply GHG economic analysis and to apply GHG GHG emissions. 100% by FY20. accounting, with annual disclosure of accounting, with annual disclosure of IFC: Annual percent of eligible GHG emissions. GHG emissions. projects incorporating shadow CIP main text. Underlined and in annex carbon pricing. summary of the capital package. Annual percent of eligible proj- ects applying GHG accounting and disclosure. In cooperation with other MDBs, the In cooperation with other MDBs, the Progress in reviewing and Complete (yes/no). World Bank Group will review the Bank Group will review the method- improving methodology for methodology used for computing cli- ology used for computing climate computing climate co-benefits mate co-benefits with a view to better co-benefits with a view to better cap- to improve capturing of adapta- capturing adaptation benefits. turing adaptation benefits. tion benefits. CIP main text. Underlined and in annex summary of the capital package. IFC will increase climate investments, Increasing share of climate invest- Share of climate investments as 35% by FY30. including mitigation and adaptation ments to 35% by FY30 and reaching a percent of LTF own-account 32% average in projects, to 35% of commitments by an average of 32% between FY20 commitments. FY20–30. 2030. Over FY19–30, the average and FY30 compared with 28% in the would be 32%. no-capital increase scenario. CIP main text. Underlined and in annex summary of the capital package. (continued) Independent Evaluation Group World Bank Group    127 128 The World Bank Group’s 2018 Capital Increase Package Appendix B World Bank Group Policy Measures for Climate Change Commitments Indicators  Targets  IFC will leverage World Bank policy IFC will leverage World Bank policy No indicator in CIP implementa- No target. work (under the Cascade approach) work and expand use of private sector tion status table. and expand the use of private sector solutions that cut across sectors and Limited reporting in implemen- solutions that cut across sectors and country groups, expand share of ear- tation updates narrative. country groups. ly-stage equity investments and new technologies, and help countries meet their NDCs. CIP main text. Underlined and in annex summary of the capital package. Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FY = fiscal year; GHG = greenhouse gas; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; LTF = long-term financing; MDB = multi- lateral development bank; NDC = nationally determined contribution. Table B.7. IBRD Global Themes: Gender IBRD Policy Measures for Gender Commitments Indicators  Targets  Continuous imple- Increase the pro- Percent of op- 55% by FY23 with mentation of the portion of IBRD erations that are ambition maintained gender action plan, operations that gender tagged. or increasing to with at least 55% narrow gender gaps FY30. of IBRD operations (“gender tagged”). contributing to nar- CIP main text. rowing the gender Underlined and in gap by FY23. annex summary of the capital package. 60% of opera- Increase in the Percent of opera- 60% by FY23 with tions with financial share of IBRD oper- tions with financial ambition maintained sector components ations with financial sector components or increasing to narrowing gaps in sector components that include specific FY30. access to financial that include specific actions to close services by FY23, actions to close gender gaps in with this ambition gender gaps in access to and use of maintained or in- access to and use of financial services. creasing to FY30. financial services. CIP main text. Underlined and in annex summary of the capital package. Independent Evaluation Group World Bank Group    129 Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FY = fiscal year; IBRD = International Bank for Reconstruction and Development. Table B.8. IFC Global Themes: Gender IFC Policy Measures for Gender Commitments Indicators Targets IFC will quadruple IFC aims to quadruple Amount of annual $1.4 billion per the amount of annual the amount of annual financing dedi- year by FY30. financing dedicated to financing dedicated to cated to women women and women- women and women-led and women-led led SMEs by 2030. SMEs. SMEs. CIP main text. Underlined and in annex summary of the capital package. Increase the amount $2.6 billion in annual Amount of mon- $2.6 billion by of annual commit- commitments to financial ey committed to FY30. ments to financial institutions specifically financial institu- intermediaries spe- targeting women by tions targeting cifically targeting 2030. women. women. CIP main text. Underlined and in annex summary of the capital package. IFC will also flag all Flagging all projects with All projects with 100%. projects with gender gender component by gender compo- components by 2020. 2020. CIP main text. Not nent flagged as underlined but listed in applicable. The World Bank Group’s 2018 Capital Increase Package Appendix B annex summary of the capital package. IFC aims to double Doubling the share of Percent of 50% of women the share of women women directors IFC women directors directors by directors that IFC nominates to Boards of IFC nominates to FY30 (increase nominates to boards companies where it has boards. from 26% base- of companies where it an equity investment line). has an equity invest- (from 26% currently to ment. 50%). CIP main text. Not under- lined but listed in annex summary of the capital package. Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FY = fiscal year; IFC = International Finance Corporation; SME = small and medium enterprise. 130 Table B.9. World Bank Group Global Themes: Knowledge and Convening World Bank Group Policy Measures for Knowledge and Convening Commitments Indicators Targets The World Bank Group— » Help countries No indicator in No target. Leveraging Bank Group share experience CIP implemen- knowledge and convening role with Cascade tation status for greater impact, including approach to table. Limited demonstration effects of imple- maximize finance reporting in menting the Cascade approach. for development. implementa- » Help countries tion updates share experience narrative. on Maximizing Finance for Development. CIP main text. Not underlined but listed in annex summary of the capital package. The Bank Group—Convening CIP main text. Not No indicator in No target. the public and private sectors underlined but listed CIP implemen- on pressing global challenges. in annex summary of tation status the capital package. table. Limited reporting in implementa- tion updates narrative. Independent Evaluation Group World Bank Group    131 The World Bank will develop Develop SFK gener- SFK gen- Complete SFK generation and sharing ation and sharing. eration and (yes/no). to preserve and enhance its CIP main text. sharing de- comparative advantage in this Underlined and in veloped and area. World Bank Group efforts annex summary of presented to will focus on sharing new the capital package. the Board. research to underpin improved policy-making on emerging challenges; systematically har- nessing and sharing knowledge (for example, South-South exchange) embedded in financing operations across the income spectrum; supporting innovative approaches for data collection; and continuing to strengthen public access to development data. (continued) World Bank Group Policy Measures for Knowledge and Convening Commitments Indicators Targets Dedicate part of IBRD income Establish an IBRD Annual amount Implemented to provide concessional financ- fund that uses IBRD of funding (yes/no). ing GPG. surplus income to dedicated to Monitored (no provide concessional GPG fund from target). financing for GPG. IBRD surplus. CIP main text. Not underlined but listed in annex summary of the capital package. IFC will focus on critical mento- Not underlined in No indicator in No target. ring and financial infrastructure CIP and not listed in CIP implemen- to support entrepreneurship annex summary of tation status and innovation. the capital package. table. Not re- ported. IFC will invest with players that IFC to also invest No indicator in No target. have the potential to become with private com- CIP implemen- regional champions and panies that have tation status facilitate transfer of new tech- the strategy and the table. Limited nologies to solve development potential to become reporting in issues. To scale up in this area, regional champions. implementa- IFC will work more closely with CIP main text. Not tion updates the World Bank to advise and underlined but listed narrative. The World Bank Group’s 2018 Capital Increase Package Appendix B support policy improvements. in annex summary of the capital package. Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; GPG = global public good; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; SFK = Strategic Framework for Knowledge. 132 Table B.10. World Bank Group Global Themes: Regional Integration World Bank Group Policy Measures for Regional Integration Commitments Indicators  Targets  The World Bank Group will contin- Supporting IBRD—Progress in No tar- ue to work with regional entities, inclusive and supporting regional get. other development partners, and sustainable integration through the private sector to help build the regional inte- projects and advi- connective infrastructure in areas gration through sory services and such as transport, information and connective analytics. communication technologies, and infrastructure Reported in CIP energy. The Bank Group will support and comple- implementation efforts on complementary policy mentary policy status table and and institutional reforms that are and institutional implementation needed to ensure that gains from reforms. updates narrative. regional cooperation on infrastruc- CIP main text. ture materialize fully, to foster growth Not underlined of businesses and create good local and not listed in jobs and value addition in all partic- annex summary ipating countries in an inclusive and of the capital sustainable manner. package but recognized as commitment in implementation status table. Source: Independent Evaluation Group. Independent Evaluation Group World Bank Group    133 Note: CIP = capital increase package; IBRD = International Bank for Reconstruction and Development.  obilization and Creating Markets: Private Capital Mobilization Table B.11. M World Bank Group Policy Measures (PCM) Commitments Indicators  Targets  Adopting a systematic Adopting a sys- No indicator in CIP No target. approach to creating tematic approach implementation markets across the World to creating markets status table. Limited Bank Group by linking across the Bank reporting in imple- policy reform, advisory, Group using the mentation updates investment, and mobili- Cascade approach as narrative. zation to deliver solutions the operating system packages and using the to MFD. Cascade approach as CIP main text. Not the operating system to underlined but listed MFD. From diagnostics in annex summary of to investments, the Bank the capital package. Group instruments will be leveraged to crowd in the private sector. The Bank Group— CIP main text. Not No indicator in CIP No target. Growing use of private underlined but listed implementation sector solutions and in annex summary of status table. Limited mobilization of private the capital package. reporting in imple- finance with annual Bank mentation updates The World Bank Group’s 2018 Capital Increase Package Appendix B Group mobilization by narrative. IBRD and IFC 1.7 times higher in FY30 than in no-capital increase scenario. IBRD aims to increase its IBRD will increase its IBRD private mobili- 25% on mobilization ratios to 25% mobilization ratio to zation ratio. average over on average over FY19–30. 25% on average over FY19–30. FY19–30. CIP main text. Underlined and in annex summary of the capital package. IFC aims to increase its Not underlined in CIP No indicator in CIP No target. mobilization ratios to 90% and not listed in an- implementation sta- by 2030 and reach 80% nex summary of the tus table. Reported on average over FY19–30. capital package. in implementation updates narrative. (continued) 134 World Bank Group Policy Measures (PCM) Commitments Indicators  Targets  The Bank Group contin- IBRD—Supporting Pipeline of upstream No target. ues to implement many policy reforms to projects. important processes unlock opportunities Reported in CIP im- and tools to deliver this for private sector plementation status agenda, focusing on investment. table and imple- Bank Group coordina- IFC—Scaling up pri- mentation updates tion, upstream sector vate sector solutions narrative. prioritization and project by development, improved » Deepening Bank metrics to assess and Group collabo- anticipate the potential ration for policy for market development, reform to elim- and new tools for sup- inate obstacles porting high-risk private to private invest- sector projects and to ment. enhance mobilization. To » Using adviso- implement IFC 3.0, IFC ry services for has also put in place a upstream project new management struc- preparation and ture and developed a set de-risking tools of new tools to enhance where needed to delivery. build up the pipe- line of bankable projects. » Drawing in new private sector investors by own-account Independent Evaluation Group World Bank Group    135 investments and creating new instruments and platforms for mobilization. CIP main text. Not underlined but listed in annex summary of the capital package. Source: Independent Evaluation Group. Note: Underlined text in the table was also underlined in the CIP document to show that these were formal commitments. CIP = capital increase package; FY = fiscal year; IBRD = International Bank for Reconstruction and Development; IFC = International Finance Corporation; MFD = Maximizing Finance for Development; PCM = private capital mobilization.  obilization and Creating Markets: Domestic Revenue Table B.12. M Mobilization World Bank Group Policy Measures for DRM Commitments Indicators Targets The World Bank has Not underlined in CIP No indicator in No target. created a Global Tax Team and not listed in an- CIP implemen- charged with broadening nex summary of the tation status and deepening the tax capital package. table. base of client countries, Limited working closely with IMF. reporting in implementa- tion updates narrative. IFC aims to support DRM Not underlined in CIP No indicator in No target. by investing in local capital and not listed in an- CIP implemen- market players (such as nex summary of the tation status insurance companies and capital package. table. fund managers, and so Not reported. on) and deploying innova- tive solutions to develop the local capital markets (including bond issuance, The World Bank Group’s 2018 Capital Increase Package Appendix B partial credit guarantees, and securitizations). Source: Independent Evaluation Group. Note: CIP = capital increase package; DRM = domestic revenue mobilization; IFC = International Finance Corporation; IMF = International Monetary Fund. 136 Table B.13. World Bank Group Internal Model: Effectiveness World Bank Group Policy Measures for Effectiveness Commitments Indicators  Targets  Further implementing “agile” reforms and ad- Further implementing “agile” No indicator in CIP implementation status No target. ministrative simplifications to deploy World Bank reforms and administrative table. Reported in implementation updates Group resources more efficiently. simplifications to deploy Bank narrative. Group resources more efficient- ly, including through » Empowered and engaged staff seeking continuous improvement. » Solution-driven, mobiliza- tion-driven, and adaptive approaches. CIP main text. Not underlined but listed in annex summary of the capital package. The Bank Group—Introducing a range of new Revise staff compensation Revised staff compensation methodology Complete efficiency measures, including managing salary methodology to control salary adopted. (yes/no). and workforce growth, achieving savings in growth and pursue other human corporate procurement and real estate and sav- resources measures. ings from administrative simplification and agile CIP main text. Not underlined approaches. These measures, in addition to the but listed in annex summary of continuous implementation of the Expenditure the capital package. Review measures, will help maintain budget discipline. This commitment is outside the validation’s (continued) scope as mentioned in chapter 1. Independent Evaluation Group World Bank Group    137 138 The World Bank Group’s 2018 Capital Increase Package Appendix B World Bank Group Policy Measures for Effectiveness Commitments Indicators  Targets  IBRD—The new Environmental and Social Not underlined in CIP and not No indicator in CIP implementation status No target. Framework is being rolled out to help improve listed in annex summary of the table. Reported in implementation updates the sustainability of investments. capital package. narrative. IBRD—Procurement reforms make it easier to Not underlined in CIP and not No indicator in CIP implementation status No target. implement projects, while building the capacity listed in annex summary of the table. Reported in implementation updates of borrowers. capital package. narrative. Source: Independent Evaluation Group. Note: CIP = capital increase package; IBRD = International Bank for Reconstruction and Development. Table B.14. IBRD Internal Model: Financial Sustainability Framework IBRD Policy Measures for FSF Commitments Indicators  Targets  Introducing an IBRD FSF with the fol- Introduce an IBRD New IBRD Complete lowing objectives: FSF. FSF intro- (yes/no). » Lending remains automatically CIP main text. Not duced. aligned to long-term sustainable underlined but capacity consistent with capital ad- listed in annex equacy policy, assuming no further summary of the capital injection and continuation capital package. of transfers based on the IDA18 formula » Pressures for lending beyond sustainable level force trade-off de- cision between volume and lending terms » Efficient use of capital while retaining flexibility to respond to crises » Ten-year SALL » A set of rules to size the lending pro- gram with automatic self-correcting mechanisms to stay aligned with SALL and automatically building up a crisis buffer, including automatic harder terms for accessing crisis buffer with exceptions approved by the Board on a case-by-case basis (with cap of 20% on exceptions) » Approval by the Board of Governors Independent Evaluation Group World Bank Group    139 of the objectives and principles of the framework, as part of the capital increase resolutions » Annual Board update on lending program, SALL, and status of the buffer and Board authorizations related to the buffer. Source: Independent Evaluation Group. Note: CIP = capital increase package; FSF = Financial Sustainability Framework; IBRD = International Bank for Reconstruction and Development; IDA18 = 18th Replenishment of the International Development Association; SALL = sustainable annual lending limit. Table B.15. IFC Internal Model: Financial Sustainability Framework IFC Policy Measures for FSF Commitments Indicators  Targets  Continuing application of the Continue ap- Continued Implemented existing framework, which plication of the application of (yes/no). contains the following: existing IFC the existing » Strategic capital adequacy framework and IFC frame- framework with minimum improve cer- work with DSC ratio tain aspects of relevant en- » Minimum investment return the framework hancements. targets for new projects through (i) formal review and » Income-based designations reaffirmation of » Active portfolio manage- the DSC policy ment and mobilization range annually, (ii) strategies that aim at opti- keeping abreast mizing balance sheet use with evolving » Economic capital allo- standards in cation framework to risk and capital manage exposure limits models, and (iii) and improvement of certain establishment aspects of the framework of more granular through the following: policy ratios. » Formal review and re- CIP main text. Not affirmation of DSC ratio underlined but policy range at least listed in annex The World Bank Group’s 2018 Capital Increase Package Appendix B annually summary of the capital package. » Application of modifi- cations to stress-testing framework and moni- toring of new risk and capital models » Establishment of more granular policy ratios Source: Independent Evaluation Group. Note: CIP = capital increase package; DSC = deployable strategic capital; FSF = Financial Sustainability Framework; IFC = International Finance Corporation. 140 The World Bank 1818 H Street NW Washington, DC 20433