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Conceived during World War II at Breton Woods, New Hampshire, the World Bank
initially helped rebuild Europe after the war. Its first loan of $250 million was to France
in 1947 for post-war reconstruction. Reconstruction has remained an important focus of
the Bank's work, given the natural disasters, humanitarian emergencies, and post conflict
rehabilitation needs that affect developing and transition economies.
Today's Bank, however, has sharpened its focus on poverty reduction as the overarching
goal of all its work. It once had a homogeneous staff of engineers and financial analysts,
based solely in Washington, D.C. Today, it has a multidisciplinary and diverse staff
including economists, public policy experts, sectoral experts, and social scientists. 40
percent of staff are now based in country offices.
(10)Inspection Panel
Established September 22, 1993
Purpose: The Inspection Panel is three-member, non-judicial body created by the Board
of Executive Directors of IBRD and IDA to provide an independent forum to private
citizens who believe that their rights or interests have been or could be directly harmed
by a project financed by the Bank. Affected people may bring their concerns to the
attention of the Panel by filing a Request for Inspection.
INTRODUCTION
The World Bank Group, originated as a result of the Bretton Woods Conference of 1944.
It is one of the world’s largest sources of development assistance and it has extended
assistance to more than 100 developing economies, bringing a mix of finance and ideas to
improve living standards and eliminate the worst forms of poverty. For each of its clients,
the Bank works with Government agencies, nongovernmental organizations and the
private sectors to formulate assistance strategies. Together with the separate International
Monetary Fund, the World Bank organizations are often called the "Bretton Woods"
institutions, after Bretton Woods, New Hampshire, where the United Nations Monetary
and Financial Conference that led to their establishment took place (1 July-22 July 1944).
The Bank came into formal existence on 27 December 1945 following international
ratification of the Bretton Woods agreements. Commencing operations on 25 June 1946,
it approved its first loan on 9 May 1947 ($250m to France for postwar reconstruction, in
real terms the largest loan issued by the Bank to date)
The World Bank is a vital source of financial and technical assistance to developing
countries around the world. It is not a bank in the common sense. Since it was set up in
1944 as the International Bank for Reconstruction and Development, the number of
member countries increased sharply in the 1950s and 1960s, when many countries
became independent nations. As membership grew and their needs changed, the World
Bank expanded and is currently made up of five different agencies
The World Bank Group consists of five closely associated institutions, each institution
playing a distinct role in the mission to fight poverty and improve standard of living for
the people in the developing world. The term World Bank refers specifically to two of the
five i.e. The International Bank for Reconstruction and Development (IBRD) and The
International Development Association (IDA). The other institutions are The
International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency
(MIGA) and The International Centre for Settlement of Investment Disputes (ICSID).
While all five specialize in different aspects of development, they use their comparative
advantages to work collaboratively towards the same overarching goal-poverty reduction.
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards. The IBRD focuses on middle income
and creditworthy poor countries, while IDA focuses on the poorest countries in the world.
Together it provides low-interest loans, interest-free credit and grants to developing
countries for education, health, infrastructure, communications and many other purposes
The World Bank's activities are focused on developing countries, in fields such as
human development (e.g. education, health), agriculture and rural development (e.g.
irrigation, rural services), environmental protection (e.g. pollution reduction, establishing
and enforcing regulations), infrastructure (e.g. roads, urban regeneration, electricity), and
governance (e.g. anti-corruption, legal institutions development). It provides loans at
preferential rates to member countries, as well as grants to the poorest countries. Loans or
grants for specific projects are often linked to wider policy changes in the sector or the
economy. For example, a loan to improve coastal environmental management may be
linked to development of new environmental institutions at national and local levels and
to implementation of new regulations to limit pollution.
The World Bank is one of the most highly-regarded financial institutions in the world,
especially in the field of development economics and related research. In addition, World
Bank standards and methods have been adopted in many areas such as transparent
procedures for competitive procurement and environmental standards for project
evaluation. World Bank also engages in funding the education of promising young people
from developing countries through its graduate scholarship programs
OPERATIONS
The World Bank's two closely affiliated entities—the International Bank for
Reconstruction and Development (IBRD) and the International Development Association
(IDA)—provide low or no interest loans and grants to countries that have unfavorable or
no access to international credit markets. Unlike other financial institutions, we do not
operate for profit. The IBRD is market-based, and we use our high credit rating to pass
the low interest we pay for money on to our borrowers—developing countries. We pay
for our own operating costs, since we don’t look to outside sources to furnish funds for
overhead.
I. Fund Generation
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds
in the world's financial markets. While IBRD earns a small margin on this lending, the
greater proportion of its income comes from lending out its own capital. This capital
consists of reserves built up over the years and money paid in from the bank's 184
member country shareholders. IBRD’s income also pays for World Bank operating
expenses and has contributed to IDA and debt relief.
IDA, the world's largest source of interest-free loans and grant assistance to the poorest
countries, is replenished every three years by 40 donor countries. Additional funds are
regenerated through repayments of loan principal on 35-to-40-year, no-interest loans,
which are then available for re-lending. IDA accounts for nearly 40% of our lending.
II. Loans
Through the IBRD and IDA, we offer two basic types of loans and credits: investment
loans and development policy loans. Investment loans are made to countries for goods,
works and services in support of economic and social development projects in a broad
range of economic and social sectors. Development policy loans (formerly known as
adjustment loans) provide quick-disbursing financing to support countries’ policy and
institutional reforms.
Each borrower’s project proposal is assessed to ensure that the project is economically,
financially, socially and environmentally sound. During loan negotiations, the bank and
borrower agree on the development objectives, outputs, performance indicators and
implementation plan, as well as a loan disbursement schedule. While we supervise the
implementation of each loan and evaluate its results, the borrower implements the project
or program according to the agreed terms. As nearly 30% of our staff is based in some
100 country offices worldwide, three-fourths of outstanding loans are managed by
country directors located away from the World Bank offices in Washington.
IDA long term loans (credits) are interest free but do carry a small service charge of 0.75
percent on funds paid out. IDA commitment fees range from zero to 0.5 percent on un-
disbursed credit balances; for FY06 commitment fees have been set at 0.30 percent. For
complete information about IBRD financial products, services, lending rates and charges,
please visit the World Bank Treasury . Treasury is at the heart of IBRD's borrowing and
lending operations and also performs treasury functions for other members of the World
Bank Group.
III. Grants
Grants are designed to facilitate development projects by encouraging innovation, co-
operation between organizations and local stakeholders’ participation in projects. In
recent years, IDA grants—which are either funded directly or managed through
partnerships—have been used to:
• Relieve the debt burden of heavily indebted poor countries
• Improve sanitation and water supplies
• Support vaccination and immunization programs to reduce the incidence of
communicable diseases like malaria
• Combat the HIV/AIDS pandemic
• Support civil society organizations
• Create initiatives to cut the emission of greenhouse gasses
The World Bank continually strives to improve the delivery of its aid based on the
lessons learned from experience. Recognizing that in virtually all successful past
assistance efforts the country itself was driving the agenda, the Bank strives to help
governments take the lead in preparing and implementing development strategies to
shape the future of their countries. This is the philosophy behind the
Bank's Comprehensive Development Framework which, since 1999, has guided the
way its assistance has been delivered to developing countries. The four main principles of
the CDF are:
For low-income countries, the Bank's plans for assistance are based on Poverty
Reduction Strategies. In preparing theses strategies, the government consults a wide
cross-section of local groups and combines this with an extensive analysis of the
country's poverty and economic situation. The process is designed to develop country
ownership of the strategy, as well as to foster greater openness in policymaking and
increase government commitment to policies. After the consultations, the government
identifies the country's priorities and targets for reducing poverty over a three to five year
period. The Bank and other aid agencies then align their assistance efforts with the
country's own strategy - a proven way of boosting aid effectiveness.
The Bank's main vehicle for making strategic choices about the program design and
resource allocations for individual countries is its Country Assistance Strategy which,
since July 2002, has been based on PRSPs when dealing with low-income countries. In
producing its Country Assistance Strategy, the Bank conducts extensive analysis of the
country's economic and social situation in consultation with the government. Studies may
be conducted into issues such as poverty levels, agriculture, the health and education
systems, environmental policies, government procurement or financial management.
Additionally, the Bank has recently reviewed its role, activities, and effectiveness and the
development needs of countries in specific circumstances: Low Income Countries Under
Stress, Middle-Income Countries (MICs), and Small States.
Comprehensive Development Framework
Eliminating poverty, reducing inequity, and improving opportunity for people in low- and
middle-income countries are the World Bank Group's central objectives. The CDF is an
approach by which countries can achieve these objectives. It emphasizes the
interdependence of all elements of development—social, structural, human, governance,
environmental, economic, and financial.
The CDF advocates: a holistic long-term vision; the country in the lead, both "owning"
and directing the development agenda, with the Bank and other partners each defining
their support in their respective business plans; stronger partnerships among
governments, donors, civil society, the private sector, and other development
stakeholders in implementing the country strategy; and a transparent focus on
development outcomes to ensure better practical success in reducing poverty.
Poverty Reduction Strategy Papers (PRSPs) are one of the most tangible outcomes of the
new approach to development defined in the Bank's Comprehensive Development
Framework. Under the PRSP process, low-income countries write their own plans for
reducing poverty. Since July 2002, the World Bank has based its Country Assistance
Strategies, its plans for assistance to low-income countries, on PRSPs. PRSPs are
produced according to five principles:
They are based on a long-term perspective for poverty reduction. PRSPs foster greater
openness in policymaking. Governments have sought increasingly to include traditionally
marginalized groups, the private sector and civil society in developing them and because
of this, poverty-reduction strategies developed through this process tend to have broader
community and stakeholder support and are "owned" by the government
The 24 Executive Directors make up our Board of Directors. They normally meet twice a
week to oversee business, including reviewing loans and guarantees; new policies; the
administrative budget; country support strategies; and borrowing and financial decisions.
Dhanendra Kumar is the Executive Director for India. He also represents Bangladesh,
Bhutan, and Sri Lanka.
VOTING POWERS
Like all corporate organizations, each of the agencies of the World Bank Group has
shareholders; these are the member countries. Every shareholder is allocated a certain
number of votes linked to the size of its shareholding. The votes include a specified
number of membership votes (which is the same for all members) and additional votes
based on the number of shares of the stock held. The number of votes of a member
expressed as a percentage of the total number of votes held by all shareholders is the
member’s voting power.
TYPES OF LOAN
The Bank has two basic types of lending instruments: investment loans and development
policy loans. Investment loans have a long-term focus (5 to 10 years), and finance goods,
works, and services in support of economic and social development projects in a broad
range of sectors. Development Policy loans have a short-term focus (1 to 3 years), and
provide quick-disbursing external financing to support policy and institutional reforms.
Investment Lending
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development. Over the past two decades, investment lending has, on average, accounted
for 75 to 80 percent of all Bank lending.
The nature of investment lending has evolved over time. Originally focused on hardware,
engineering services, and bricks and mortar, investment lending has come to focus more
on institution building, social development, and building the public policy infrastructure
needed to facilitate private sector activity. Projects range from urban poverty reduction
(involving private contractors in new housing construction, for example) to rural
development (formalizing land tenure to increase the security of small farmers); water
and sanitation (improving the efficiency of water utilities); natural resource management
(providing training in sustainable forestry and farming); post-conflict reconstruction
(reintegrating soldiers into communities); education (promoting the education of girls);
and health (establishing rural clinics and training health care workers).
Eligibility. Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group.
Disbursement. Funds are disbursed against specific foreign or local expenditures related
to the investment project, including pre-identified equipment, materials, civil works,
technical and consulting services, studies, and incremental recurrent costs. Procurement
of these goods, works, and services is an important aspect of project implementation. To
ensure satisfactory performance, the loan agreement may include conditions of
disbursement for specific project components.
Instruments. The large majority of investment loans are either Specific Investment
Loans or Sector Investment and Maintenance Loans. Adaptable Program Loans and
Learning and Innovation Loans were recently introduced to provide more innovation and
flexibility. Other instruments tailored to borrowers' specific needs are Technical
Assistance Loans, Financial Intermediary Loans, and Emergency Recovery Loans.
Development Policy Lending
Eligibility. Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group. Eligibility for a development policy loan also requires
agreement on monitorable policy and institutional reform actions, and satisfactory
macroeconomic management. Coordination with the IMF is an essential part of the
preparation of a development policy loan.
Disbursement. Funds are disbursed in one or more stages (tranches). Tranches are
released when the borrower complies with stipulated release conditions, such as the
passage of reform legislation, the achievement of certain performance benchmarks, or
other evidence of progress toward a satisfactory macroeconomic framework.
Instruments. The new policy OP/BP 8.60 applies uniformly to all development policy
lending, replacing the previous different types of lending (e.g., RILs, SALs, SECALs,
SNALs, PSALs). Development policy operations in PRSP countries may continue to be
called "PRSCs", because this is by now a well-established "brand name."
World Bank Group Agencies
Governments can choose which of these agencies they sign up to individually. The
IBRD has 184 member governments, and the other institutions have between 140 and 176
members. The institutions of the World Bank Group are all run by a Board of 24
Executive Directors, with each Director representing either one country (for the largest
countries), or a group of countries. Directors are appointed by their respective
governments or the constituencies.
The agencies of the World Bank are each governed by their Articles of Agreement that
serve as the legal and institutional foundation for all of their work
I. International Bank for Reconstruction and Development
History
Commencing operations on June 25, 1946, it approved its first loan on May 9, 1947
($250m to France for postwar reconstruction, in real terms the largest loan issued by the
Bank to date).
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan
after World War II, with an additional mandate to foster economic growth in developing
countries in Africa, Asia and Latin America. Originally the bank focused mainly on
large-scale infrastructure projects, building highways, airports, and power plants. As
Japan and its European client countries "graduated" (achieved certain levels of income
per capita), the IBRD became focused entirely on developing countries. Since the early
1990s the IBRD has also provided financing to the post-Socialist states of Eastern Europe
and the former Soviet Union.
CURRENT SCENARIO:
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group. The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII.
Now, its mission has expanded to fight poverty by means of financing states. Its
operation is maintained through payments as regulated by member states. It came into
existence on December 27, 1945 following international ratification of the agreements
reached at the United Nations Monetary and Financial Conference of July 1 to July 22,
1944 in Bretton Woods, New Hampshire.
The IBRD provides loans to governments, and public enterprises, always with a
government (or "sovereign") guarantee of repayment. The funds for this lending come
primarily from the issuing of World Bank bonds on the global capital markets - typically
$12-15 billion per year. These bonds are rated AAA (the highest possible) because they
are backed by member states' share capital, as well as by borrowers' sovereign
guarantees. (In addition, loans that are repaid are recycled (relent).) Because of the
IBRD's credit rating, it is able to borrow at relatively low interest rates. As most
developing countries have considerably lower credit ratings, the IBRD can lend to
countries at interest rates that are usually quite attractive to them, even after adding a
small margin (about 1%) to cover administrative overheads.
MISSIONS AND PRINCIPLES:
The mission of the Bank is to:
• Fight poverty with passion and professionalism for lasting results.
• Help people help themselves and their environment by providing resources,
sharing knowledge, building capacity and foreign partnership in the public and
private sectors.
• Be an excellent institution able to attract, excite and nurture diverse and
committed staff with exceptional skills who know how to listen and learn.
PURPOSES:
The purposes of the Bank, as laid down in its Articles of Agreement are:
• To assist in the reconstruction and development of the territories of the members,
by facilitating the investment of capital for productive purposes including the
restoration of economies destroyed by war, the reconversion of productive
facilities to peace time needs, and the encouragement of the development of
productive facilities and resources in the less developed countries.
• To promote private foreign investment by means by means of guarantees or
participation in loans and other investments made by private investors and when
private capital is not available on reasonable terms, to supplement private
investments by providing on suitable conditions, finance for productive purposes
out of its own capital funds raised by it and other resources.
• To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments, by encouraging international investments
of the productive resources of members, thereby assisting in raising productivity,
the standard of living and conditions of labour in their territories.
ORIENTATION:
The main focus is on helping the poorest people and the poorest countries, but for all its
clients the Bank emphasises the need for :
Through its loans, policy advice and technical assistance, the World Bank supports a
broad range of programmes aimed at reducing poverty and improving standard of living
in the developing world.
The global fight against poverty is aimed at ensuring that people everywhere in this
world have a chance for a better life for themselves and for their children. Over the past
generation, more progress has been made in reducing peverty and raising standard of
living than during any other period in history in developing countries.
GUIDING PRINCIPLES:
In its lending operation, the Bank is guided by certain policies which have been
formulated on the basis of Articles of Agreement
First, the Bank should properly assess the repayment prospects of the loans. For
this purpose, it should consider the availability of natural resources and
productive plant capacity to exploit the resources, and operate the plant and the
country’s past debt record.
Secondly, the Bank should lend only for specific projects which are economically
and technically sound and of a high priority nature. Most Bank loans have been
made for basic utilities, such as power and transport which are prerequisites for
economic development. The Bank also places considerable emphasis upon
proper management of the projects.
Thirdly, the Bank lends only to enable a country to meet the foreign exchange
content of any project cost, it normally expects the borrowing country to mobilise
its domestic resources.
Fourthly, the Bank does not expect the borrowing country to spend the loan in a
particular country, in fact, it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
satisfactory performance.
Fifthly, it is the Banks policy to maintain continuing relations with borrowers with
a view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries. This also helps in the solution of
any problem which might arise in the technical and administrative field.
Lastly, the Bank indirectly attaches special importance to the promotion of local
private enterprise.
LENDING PROGRAMMES
The World Bank has traditionally financed all kinds of capital infrastructure such as
roads and railways, telecommunications and ports and power facilities, its development
strategy also places an emphasis on investment that can directly affect the well being of
the masses of poor people of developing countries by integrating them as active partners
in the development process.
History
The International Bank for Reconstruction and Development (IBRD), better known as the
World Bank, was established in 1944 to help Europe recover from the devastation of
World War II. The success of that enterprise led the Bank, within a few years, to turn its
attention to the developing countries. By the 1950s, it became clear that the poorest
developing countries needed softer terms than those that could be offered by the Bank, so
they could afford to borrow the capital they needed to grow.
With the United States taking the initiative, a group of the Bank’s member countries
decided to set up an agency that could lend to the poorest countries on the most
favourable terms possible. They called the agency the "International Development
Association." Its founders saw IDA as a way for the "haves" of the world to help the
"have-nots." But they also wanted IDA to be run with the discipline of a bank. For this
reason, US President Dwight D. Eisenhower proposed, and other countries agreed, that
IDA should be part of the World Bank (IBRD).
Current Scenario:
The International Development Association (IDA) provides grants and "soft loans", with
repayment periods of some 30 years and no interest, to the poorest countries (generally
with per capita incomes below $500 per year). IDA concessionary lending is funded by
direct contributions from member states, which subsidise the difference between the
IBRD's costs and the price charged to IDA borrowers.
IBRD and IDA are run on the same lines. They share the same staff and headquarters,
report to the same president and evaluate projects with the same rigorous standards. But
IDA and IBRD draw on different resources for their lending, and because IDA’s loans
are deeply concessional, IDA’s resources must be periodically replenished (see "IDA
Funding" below). A country must be a member of IBRD before it can join IDA; 165
countries are IDA members.
IDA's Articles of Agreement became effective in 1960. The first IDA loans, known as
credits, were approved in 1961 to Chile, Honduras, India and Sudan
IDA’s Mission
The International Development Association (IDA) is the part of the World Bank that
helps the earth’s poorest countries reduce poverty by providing interest-free loans and
grants for programs aimed at boosting economic growth and improving living conditions.
IDA funds help these countries deal with the complex challenges they face in striving to
meet the Millennium Development Goals. They must, for example, respond to the
competitive pressures as well as the opportunities of globalization; arrest the spread of
HIV/AIDS; and prevent conflict or deal with its aftermath.
IDA’s long-term, no-interest loans pay for programs that build the policies, institutions,
infrastructure and human capital needed for equitable and environmentally sustainable
development. IDA’s goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy, reducing poverty and
promoting more equal access to the opportunities created by economic growth.
IDA's Borrowers
IDA lends to those countries that had an income in 2005 of less than $1,025 per person
and lack the financial ability to borrow from IBRD. Some "blend borrower" countries
like India and Indonesia are eligible for IDA loans because of their low per person
incomes but are also eligible for IBRD loans because they are financially creditworthy.
Eighty-one countries are currently eligible to borrow from IDA. Together these countries
are home to 2.5 billion people, half of the total population of the developing world. Most
of these people, an estimated 1.5 billion, survive on incomes of $2 or less a day.
IDA Lending
IDA credits have maturities of 20, 35 or 40 years with a 10-year grace period before
repayments of principal begins. IDA funds are allocated to the borrowing countries in
relation to their income levels and record of success in managing their economies and
their ongoing IDA projects. There is no interest charge, but credits do carry a small
service charge, currently 0.75 percent on funds paid out. See the terms of IDA lending.
In fiscal year 2006 (which ended June 30, 2006), IDA commitments totaled $9.5 billion.
New commitments in FY06 comprised 167 new operations. Fifty percent of new
commitments went to Sub Saharan Africa, 27 percent to South Asia, 11 percent to East
Asia and the Pacific, 5 percent to Eastern Europe and Central Asia, and the remainder to
poor countries in North Africa and in Latin America. The leading IDA borrowers in
FY06 are listed in Table 1.
Since 1960, IDA has lent $170 billion to 108 countries. Annual lending figures have
increased steadily and averaged about $9.1 billion over the last three years. Most loans
address basic needs, such as primary education, basic health services, and clean water and
sanitation. IDA also funds projects that safeguard the environment, improve conditions
for private business, build infrastructure, and support reforms to liberalize countries'
economies and strengthen their institutions. All these projects pave the way toward
economic growth, job creation, higher incomes and better living conditions.
IDA Funding
While the IBRD raises most of its funds on the world's financial markets, IDA is funded
largely by contributions from the governments of the richer member countries. Additional
funds come from IBRD's income and from borrowers' repayments of earlier IDA credits.
See the list of cumulative contributions to IDA Replenishments and donor shares of total
contributions.
Donors get together every three years to replenish IDA funds. Donor contributions
account for more than half of the US$33 billion in the IDA14 replenishment, which
finances projects over the three-year period ending June 30, 2008. The largest pledges to
IDA14 were made by the United States, the United Kingdom, Japan, Germany, France,
Italy and Canada, but less wealthy nations also contribute to IDA. Turkey and Korea, for
example, once IDA borrowers, are now donors. Countries currently eligible to borrow
from IBRD (but not from IDA) –Brazil, Czech Republic, Hungary, Mexico, Poland,
Russia, the Slovak Republic, and South Africa – are also IDA14 donors. Other
contributors include Australia, Austria, Barbados, Belgium, Denmark, Finland, Greece,
Iceland, Ireland, Israel, Kuwait, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Saudi Arabia, Singapore, Slovenia, Spain, Sweden, Switzerland and Venezuela.
To increase openness and help ensure that IDA’s policies are responsive to country needs
and circumstances, representatives from each IDA region were invited to take part in the
IDA13 and IDA14 replenishment negotiations. The number of borrower representatives
was expanded – to a total of nine – during the IDA14 replenishment negotiations. In both
IDA13 and IDA14, background policy papers were publicly released, as well as drafts of
the replenishment reports prior to their finalization.
PURPOSE
IDA helps to reduce poverty by collaborating with other development partners, as well as
through its own programs. IDA has learned from experience that development programs
are most successful when the borrower country – not just the government, but non-
governmental organizations (NGOs) and other representatives of civil society – acquires
a sense of ownership of the programs through deep involvement in their design and
execution. The borrower country now leads in preparing the Poverty Reduction Strategy
(PRS) that establishes priorities for IDA support. In each country, IDA works with local
development partners to ensure that the PRS is carried out in a coherent way and that
IDA focuses on areas where it has comparative advantage. In IDA13, IDA targeted
human-development projects in areas like education, health, social safety nets, water
supply and sanitation (36%); law, justice and public administration (23%); industry
(18%); infrastructure (14%), and agriculture and rural development (8%).
ORIENTATION
IDA carries out analytical studies to build the knowledge base that allows intelligent
design of policies to reduce poverty. IDA also advises governments on ways to broaden
the base of economic growth and protect the poor from economic shocks.
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health, primary education, literacy and
clean water. IDA is now the single largest source of donor funds for basic social services
in the poorest countries.
IDA also coordinates donor assistance to provide relief for poor countries that cannot
manage their debt-service burden.
Globalization – the increasing integration of world markets and societies – has allowed
China, India and many other developing countries to achieve faster growth through
expanded foreign direct investments and access to export markets. IDA is re-invigorating
its work in trade to assist the poorest and most marginalized countries to limit adverse
disruptions from globalization and to enhance net benefits from it. IDA’s work in this
area emphasizes measures to improve the investment climate; enhance regional
integration, particularly in Africa; strengthen competitiveness; remove barriers to the
markets of industrial countries; and forge partnerships that enable acquisition of
appropriate skills and infrastructure
LENDING PROGRAMME:
IDA's 81 eligible borrowers have very significant needs for concessional funds. But the
amounts of funds available for lending which is virtually fixed once donations are
pledged by donor governments, tends to be well below the countries' need. IDA therefore
must allocate scarce resources among eligible borrowing countries. This note describes
how this is done on the basis of borrowers' policy performance and institutional capacity
in order to concentrate resources where they are likely to be most helpful in reducing
poverty.
1. Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA
resources:
2. Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries
is each country's performance in implementing policies that promote economic growth
and poverty reduction. This bas been assessed by the Country Policy and Institutional
Assessment (CPIA). To fully underscore the role of the CPIA in the IDA Performance
Based Allocations, the overall country score is referred to as the IDA Resource
Allocation Index (IRAI). In addition to the IRAI, portfolio performance and governance
also feature in the allocation process. Together, the IRAI, portfolio performance and
governance constitute the IDA Country Performance Rating (CPR). In addition to the
CPR, population and per capita income also determine IDA allocations.
3. Performance Ratings
Every year World Bank staff assesses the quality of each borrower's policy performance.
The criteria and methodology of these assessments have evolved over time to incorporate
lessons from experience as well as research findings. Beginning in 1998, the country
performance assessment was broadened to include an appraisal not only of the
government's policies but also of the institutions in place to implement them. The 16
performance criteria are grouped into four clusters
• Structural Policies
• Policies for Social Inclusion/Equity
• Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that, starting with the results for 2005, the numerical IDA country performance
ratings would be disclosed.
The performance assessment also takes into account the performance of the country's
active project portfolio performance. The combined rating is scaled up or down
depending on the strength of the country's governance performance, resulting into the
IDA Country Performance Rating (CPR).
4. Allocation Process
The allocation of IDA's resources is determined primarily by each borrower's rating in the
annual country performance and institutional assessment. In addition, the IDA14
Agreement recommends that because the acceleration of economic and social
development in Sub-Saharan Africa remains foremost among IDA's priorities, these
countries should receive priority in the allocation process, provided their policy
performance warrants it. In the case of borrowers that are eligible for both IDA and IBRD
funds ("Blend countries"), the IDA allocations must also take into account those
countries' creditworthiness for and access to other sources of funds. Individual country
performance-based allocations serve as an anchor for the formulation of Country
Assistance Strategy (CAS) lending programs.
IDA management monitors actual lending to each country in relation to the planning
allocations. As a result, actual lending on per capita terms is robustly correlated with
performance levels. The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most
conducive to effective resource use.
IDA-Votes and Subscription
MEMBER
PART I COUNTRIES
AUSTRALIA
AUSTRIA
BELGIUM
CANADA
DENMARK
FINLAND
FRANCE
GERMANY
GREECE
ICELAND
IRELAND
ITALY
JAPAN
KUWAIT
LUXEMBOURG
NETHERLANDS
NEW ZEALAND
NORWAY
PORTUGAL
RUSSIAN FEDERATION
SLOVENIA
SOUTH AFRICA
SPAIN
SWEDEN
SWITZERLAND
UNITED ARAB EMIRATES
UNITED KINGDOM
UNITED STATES
PART II COUNTRIES
AFGHANISTAN
ALBANIA
ALGERIA
III. INTERNATIONAL FINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new
and different entity to complement their own. The Bank had been founded to finance
post-World War II reconstruction and development projects by lending money to member
governments, and had been doing so effectively. Yet in its initial years, some senior staff
had seen the need for creating a related institution to spur greater private sector
investment in poor countries. The economies of poor countries were still in very early
stages of development, lacking the human resources, physical infrastructure and sound
institutions needed to raise incomes and improve living standards. The responsibility for
development was almost universally assigned to the public sector. Private sector
investment in developing countries was small, and not much thought was given to
increasing it. It was into this environment that IFC was born.
CURRENT SCENARIO:
IFC is a member of the World Bank Group and is headquartered in Washington, DC. It
shares the primary objective of all World Bank Group institutions: to improve the quality
of the lives of people in its developing member countries. IFC Mission Statement.
Established in 1956, IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world. It promotes sustainable private sector
development primarily by:
We believe that sound economic growth is key to poverty reduction; that it is grounded in
the development of entrepreneurship and successful private investment; and that a
conducive business environment is needed for the latter to thrive and contribute to
improving people's lives.
• Taking educated risks that the private sector will not take alone;
• Pioneering opportunities in frontier countries and sectors, to maximize our
projects' demonstration effect and catalytic role;
• Innovating by developing new products and services that better meet our clients'
needs;
• Providing quality advice when the private sector is unwilling or unable to do so;
• Sharing knowledge to promote successful private investment, entrepreneurship,
and enabling business environments;
• Integrating fully best environmental, social, and corporate governance practices in
all our work; and
• Being responsive to their needs and those of our private sector clients in a timely
manner.
(b) Integrity:
• Holding ourselves and our clients to the highest professional and ethical
standards;
• Recognizing, in every investment, the importance and value of good corporate
governance;
• Seeking to be transparent, accountable, and equitable; and
• Being honest, open and fair in our dealings with each other, with our clients and
with local communities.
• Ensuring that our projects attain high environmental and social standards;
• Consulting with local communities on project-specific environmental and social
impacts and opportunities;
• Working with responsible clients and other lenders, and local NGOs; and
• Listening actively and responding to stakeholders and their concerns.
GUIDING PRINCIPLES:
To be eligible for IFC funding, a project must meet a number of criteria. The project
must:
After this initial contact and a preliminary review, IFC may proceed by requesting a
detailed feasibility study or business plan to determine whether or not to appraise the
project.
IFC's project/investment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project.
Although IFC is primarily a financier of private sector projects, it may provide finance
for a company with some government ownership, provided there is private sector
participation and the venture is run on a commercial basis.
Although IFC does not accept government guarantees for its financing, its work often
requires close cooperation with government agencies in developing countries.
To ensure the participation of investors and lenders from the private sector, IFC limits the
total amount of own-account debt and equity financing it will provide for any single
project.
For new projects the maximum is 25 percent of the total estimated project costs, or, on an
exceptional basis, up to 35 percent in small projects. For expansion projects, IFC may
provide up to 50 percent of the project cost, provided its investments do not exceed 25
percent of the total capitalization of the project company.
IFC provides a wide variety of financial products and services to its clients and can offer
a mix of financing and advice that is tailored to meet the needs of each project. However,
the bulk of the funding, as well as leadership and management responsibility, lie with
private sector owners.
LENDING PROGRAMMES:
IFC's equity and quasi-equity investments are funded out of its net worth: the total of paid
in capital and retained earnings. Strong shareholder support, triple-A ratings, and the
substantial paid-in capital base have allowed IFC to raise funds for its lending activities
on favorable terms in the international capital markets. Retained earnings now represent
almost three-quarters of IFC's net worth of $9.8 billion (end-June 2006).
Within the World Bank Group, the World Bank finances projects with sovereign
guarantees, while the IFC finances projects without sovereign guarantees. This means
that the IFC is primarily active in private sector projects, although some projects in the
public sector (at the municipal or sub-national level) have recently been funded.
Private sector financing is IFC's main activity, and in this respect is a profit-oriented
financial institution (and has never had an annual loss in its 50-year history). Like a bank,
IFC lends or invests its own funds and borrowed funds to its customers and expects to
make a sufficient risk-adjusted return on its global portfolio of projects.
Apart from its core investment activities, IFC also carries out technical cooperation
projects in many countries to improve the investment climate. These activities may be
linked to a specific investment project, or, increasingly, to broader goals such as
improving the legislative environment for a specific industry. IFC's technical cooperation
projects are generally funded by donor countries or from IFC's own budget.
VOTING POWER
NO. OF PERCENT
MEMBER VOTES OF TOTAL
PART I COUNTRIES
CURRENT SCENARIO:
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance, advising governments on attracting investment, sharing
information through on-line investment information services, and mediating disputes
between investors and governments. MIGA also requires host country government
approval for every project. MIGA tries to work with host governments - resolving claims
before they are filed.
MISSION:
As a member of the World Bank Group, MIGA's mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth, reduce
poverty, and improve people's lives.
Foreign direct investors can play a critical role in reducing poverty, by building roads, for
example, providing clean water and electricity, and above all, providing jobs. By taking
on these tasks, the private sector can help economies grow and avert the need for
governments to use funds better spent on acute social needs, while taking advantage of
the opportunity to make profitable investments.
PURPOSE:
GUIDING PRINCIPLES:
Confidence, security, and credibility. MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries. As part of
the World Bank Group, and having as our shareholders both host countries and investor
countries, MIGA brings security and credibility to an investment that is unmatched. Our
presence in a potential investment can literally transform a "no-go" into a "go." We act as
a potent deterrent against government actions that may adversely affect investments. And
even if disputes do arise, our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties.
Market leader. MIGA is a leader when it comes to assessing and managing political
risks, developing new products and services, and finding innovative ways to meet client
needs. But we don't stop there. We also provide expert advice to help countries attract
and retain quality foreign investment, and a host of online services to make sure investors
know about business opportunities in our developing member countries.
Complex deals. MIGA can be the difference between make or break, by providing that
all-critical lynchpin that enables a complex transaction to go ahead. MIGA offers
innovative coverage of the nontraditional sub-sovereign risks that often accompany water
and other infrastructure projects. We can also cover interest rate hedging instruments, as
we did for a power project in Vietnam, as well as provide capital markets guarantees,
which we recently did for residential mortgage-backed securities in Latvia.
PRI market. MIGA complements the activities of other investment insurers and works
with partners through its coinsurance and reinsurance programs. By doing so, we are able
to expand the capacity of the political risk insurance industry to insure investments, as
well as to encourage private sector insurers into transactions they would not have
otherwise undertaken
LENDING PROGRAMMES:
Unlike other insurers, MIGA is backed by the World Bank Group and its member
countries
MIGA: Votes and Subscriptions
History
In the past, the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors. The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes. But the
Bank's overriding consideration in creating ICSID was the belief that an institution
specially designed to facilitate the settlement of investment disputes between
governments and foreign investors could help to promote increased flows of international
investment.
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14, 1966
Current Scenario
ICSID is an autonomous international organization. However, it has close links with the
World Bank. All of ICSID's members are also members of the Bank. Unless a
government makes a contrary designation, its Governor for the Bank sits ex officio on
ICSID's Administrative Council. The expenses of the ICSID Secretariat are financed out
of the Bank's budget, although the costs of individual proceedings are borne by the
parties involved.
ICSID has an Administrative Council, chaired by the World Bank's President, and a
Secretariat. It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors.
During the past decade, with the proliferation of bilateral investment treaties (BITs), most
of which refer present and future investment disputes to the ICSID, the caseload of the
ICSID has substantially increased. As of June 30, 2005, ICSID had registered 184 cases
more than 30 of which were pending against Argentina – Argentina's economic crisis and
subsequent Argentine government measures led several foreign investors to file cases
against Argentina.
The IMF and the World Bank complement each other's work. While the IMF's focus is
chiefly on macroeconomic and financial sector issues, the World Bank is concerned
mainly with longer-term development and poverty reduction. Its loans finance
infrastructure projects, the reform of particular sectors of the economy, and broader
structural reforms.
Countries must join the IMF to be eligible for World Bank membership.
The contribution made by IMF and World Bank in helping the member countries in
different ways cannot be ignored. Studies show that the project assisted by the World
Bank group could make significant impact in the respective countries. IMF has played an
important role in providing international liquidity and in the structural adjustment
programmes. There is, however a wide gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the developed
countries, have not been paying adequate attention to the needs of the developing
countries.
The objective of the Bretton Woods Conference was to establish global monetary and
financial system to promote stable exchange rates, foster the growth of world trade, and
international movement of capital in the desired directions.
At the time of establishment of these institutions, most of the developing countries were
colonies and therefore, not represented at the Bretton Woods. The major concern of these
institution was, naturally the major problem of the main participants, i.e. the developed
countries, and “there was an almost inevitable lack of concern for the interests of the
developing countries.” Even after the developing countries have outnumbered the
developed ones in the total membership of these institutions, the dominance of the
developed countries continues because the voting system which gives clear control to the
large contributors.
However, concern for developing countries was not completely absent; the mandate of
the World Bank included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war devastated Europe and Japan received
much more attention than the crying development needs of the developing countries. The
proposal for Special United Nations Fund for Economic Development (SUNFED), which
would offer large-scale aid on easy terms to developing countries, was rejected in the
1950s mainly because developed countries objected to the United Nations becoming
involved in financial aid to developing countries.
The view that in the international management of balance of payment disequilibrium,
there should be pressure to adjust on both surplus countries and deficit countries, rather
than only on those in deficit, was also ignores. In fact, Keynes’ original proposal for an
International Clearing Union (the prototype for the IMF) included the possibility of a
penalty on surplus countries-one percent of the surplus pr month to encourage them to
make adjustments, too.
Again, only very little could be done by the IMF in solving the international liquidity
problem of the developing countries in comparison with those of the developed countries.
Indeed developing countries need much larger attention of the multilateral institution than
the developed countries for various reasons. The developed countries have the capability
for, and ready access to commercial borrowing whenever the reserves run short. The
United States, which has had the largest deficit among the developed countries, has also
had option of running permanent deficit since other countries have been content to hold
dollars.
The situation for the developing countries is quite different. Due to their poor
economic conditions, the relative burden of their payment deficit is much more that that
of the absolute burden; the absolute deficit itself has been huge. Not only that the
commercial borrowing capability of these nations are limited, the accessibility has also
been limited because of their poor creditworthiness. It may be recalled that, in the early
1990s when Indias Foreign Exchange reserves position became very critical, the sources
of short-term commercial borrowings dried up due to fall in the credit rating. To make
matters worse, because of poor credit ratings, the developing countries have had to pay an
average rate of interest which was about four times the rate applied to the developed
countries on commercial borrowing.
Against the background, the IMF system has been ironic as far as the developing
countries are concerned. The unconditional borrowing rights based on the quota highly
discriminate against the developing countries. What is more draconic has been the
allocation of SDRs, the created liquid assets, in proportion to the quota.
One of the important problems of the developing countries is the increase in the debt
service due to the payment commitments of the past debt. There has been a transfer of
large amounts of funds from the developing countries to the creditors as debt services.
This has not been compensated by an increased flow from the IMF to the developing
countries. During certain period, IMF was actually withdrawing funds from developing
countries. “The Bretton Woods institution thus failed many developing countries at their
times of great need.”
Stiglitz very categorically observes that a half century after its founding, it is clear that
the IMF has failed in its mission. It has not done what it was supposed to do-provide
funds for countries facing an economic downturn, to enable the country to restore itself to
close to full employment. In spite of the fact that our understanding of economic process
has increased enormously during the last fifty years, and in spite IMF’s efforts during the
past quarter century, crises around the world have been more frequent and (with the
exception of the Great Depression) deeper, by some reckoning, close to hundred
countries have faced crises. Worse, many of the policies that the IMF pushed, in a
particular premature capital market liberalization, have contributed to global instability.
And once a country was in crisis, IMF funds and programs not only failed to stabilize the
situation but in many cases actually made matters worse, especially for the poor. The
IMF failed in its original mission of promoting global stability; it has also been no more
successful in the new mission that it has undertaken, such as guiding the transition of
countries from communism to a market economy.
One problem as far as the proper functioning of the IMF is concerned, has been that it
has not had any control over the rich nations. It could not, therefore, avert the breakdown
of the Bretton Woods monetary systems. It has been rightly observed that “the World
Bank is no closer to meeting its mandate either. It was established to borrow the savings
of the rich nations and to lend them to the poor nations- to finance sound development
projects and programmes, particularly where private investments failed or was
inadequate. In fact, it has done little to recycle global surplus to deficit nations.”
Only a small portion of the total World Bank assistance is in the form of soft loans
(IDA credits). The IDA now represents only 30 percent of the World Bank lending. The
major part of the World Bank lending to many developing countries like India is on
commercial terms. This is one of the reasons for the increase in their debt-service
problem.
The IBRD lending rates now ‘float’ in line with the world market rates. “This is a
major shift from the Banks original role of cushioning developing countries against
fluctuations in market interest rates. The Bank was supposed to raise capital and lend it
rates that it could afford to subsidies because of its own strength and that of its industrial
country partners.”
Another limitation is the size of funds available to the Bank. The availability of funds
depends on, inter alia, the willingness of the developed countries to contribute. It is
pointed out that the United States which is the largest contributor, is not only reluctant to
increase its own contribution, but also reluctant to let other countries to do so since its
own voting power would be correspondingly reduced.
In short “the quantity and composition of World Bank lending is clearly inadequate for
the challenges it faces in developing countries.”
Some of the failures of IMF-World Bank have been highlighted above. One should as
the same time recognize the useful role they have played all these years by extending
different types of assistance to the different categories of countries. The increase in the
membership of these institutions is clear evidence of their utility. Although the
communists in the past had described these institution as organs of capitalist imperialism,
several communist countries have become members of these institutions and recently all
the states of former Soviet Union and East European countries have becomes members.
The country’s achievements have, however, created new challenges. Some of the most
prominent are:
As incomes rise, citizens are demanding better delivery of core public services such as
water and power supply, education, policing, sanitation, roads and public health. And as
physical access to services improves, issues of quality have become more central.
Education: While India has made huge progress in getting more children into primary
school, learning outcomes have yet to make more headway.
Health: Although population growth has fallen below 2% per year due to declining
fertility, there has been little improvement in maternal mortality rates. Despite falling
child mortality, rates remain high as they are strongly related to child malnutrition where
little progress has been made.
Infrastructure: Power networks, roads, transportation systems and ports are facing huge
demands from India’s rapidly growing economy. But, shortages are eroding the country’s
competitiveness and hurting the growth of labor-intensive enterprises, particularly export-
oriented manufacturing which has the potential to absorb India’s fast-growing working
population.
Substantial disparities persist within the country. In a marked departure from previous
decades, reforms of the 1990s were accompanied by a visible increase in income
inequality. Although this continues to be relatively low by global standards, disparities
between urban and rural areas, prosperous and lagging states, skilled and low-skilled
workers are growing. Inequality can have huge social costs, and evidence of social unrest
in some disadvantaged regions is growing.
Jobs: While the services sector booms with promising job opportunities for skilled
workers, some 90% of India’s labor force remains trapped in low productivity informal
sector jobs.
Lagging States: Faster economic growth has seen rising inter-state disparities. While
India’s higher-income states have successfully reduced poverty to levels comparable with
richer Latin American countries, its poorer states - Assam, Bihar, Chhattisgarh,
Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh - have not kept pace
and are lagging behind their more prosperous counterparts.
3. Sustaining Growth
Fiscal deficit: While the country has improved its fiscal indicators recently, further
improvements will be needed to reduce risks to fiscal stability and, more importantly, to
create the space to fund the country’s large infrastructure needs and ambitious social
development programs.
Trade Deficit: The trade deficit is large and has widened due to high oil prices and
increased non-oil imports. Nevertheless, India’s vulnerability to an external crisis remains
limited due to its large foreign exchange reserves - which now exceed US$160 billion -
its low levels of external debt, and buoyant exports of services.
Ongoing Reform: Redoubling of reforms that address the basic constraints to growth is
essential, as international experience shows that the recipe for slow growth is
complacency about pushing ahead with reforms in times when growth is high.
Priorities
Government policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive. The 11th Plan approach paper lays out the
Government’s priorities in this direction.A variety of Government initiatives have been
launched: to build rural infrastructure (Bharat Nirman), address employment (NREGA),
uplift rural health (NRHM), address primary education (SSA), and renew urban
infrastructure (NURM).
But for these and other programs to be effective, it is increasingly being recognized that
deeper institutional reforms are needed to strengthen capacity and enforce
accountabilities at all levels.
Public sector services reform: India’s core public services such as healthcare,
education, power, water supply and transportation need urgent improvement. This will
require systemic reform of the public sector service providers, implementing effective
systems of accountability to citizens, decentralizing responsibilities, and expanding the
role of non-state service providers.
Labor regulations: India’s labor regulations - among the most restrictive and complex in
the world - have constrained the growth of the formal manufacturing sector where these
laws have their widest application. Better designed labor regulations can attract more
labor- intensive investment and create jobs for India’s unemployed millions and those
trapped in poor quality jobs. Given the country’s momentum of growth, the window of
opportunity must not be lost for improving the job prospects for the 80 million new
entrants who are expected to join the work force over the next decade.
Lagging states: Lagging states need to bring more jobs to their people by creating an
attractive investment destination. Reforming cumbersome regulatory procedures,
improving rural connectivity, establishing law and order, creating a stable platform for
natural resource investment that balances business interests with social concerns, and
providing rural finance are important.
HIV/AIDS: The disease has the potential to upset much of the India’s recent progress.
While less than one percent of the adult population is currently estimated to be infected,
the numbers will soon be greater than any other country in the world because of India's
large population.
Other strategic challenges: These require long-term vision and urgent action:
India entered the decade with substantial economic and social achievements but also with
closed trade and investment regimes, fiscal imbalances, and a large and unwieldy public
sector. After a balance of payments crisis in 1991 it deregulated the trade and investment
regimes. Economic growth rebounded quickly and proved resilient even during the 1997
East Asian crisis. Social indicators also improved. India, however, failed to sustain the
reform process in the fiscal area and to broaden it to other structural areas. Moreover,
there was little progress in reducing rural poverty, largely due to the absence of an
effective agricultural and rural development strategy and low growth in the poorer
northern and eastern states. In the second half of the 1990s, a few states initiated
substantial policy and institutional changes, but there remains a large outstanding reform
agenda at both the state and federal levels.
India has built strong foundations for development. The Bank's main challenge is to
support far-reaching reforms, at both the state and central government levels, with high
quality and widely disseminated policy studies and policy based sector and program
loans. The five pillars and the fiscal and structural reform triggers of the 1997 Country
Assistance Strategy remain valid. Thus, only adjustments to accelerate and assure the full
application of those pillars and triggers appear necessary.
The World Bank works in close partnership with India’s Central and State Governments,
aligning its strategies with the country’s own development agenda. It lays emphasis on
investing in people through better health and education, empowering communities to
participate in their own development, improving the effectiveness of government, and
promoting private sector-led growth to achieve the country’s development goals.
Its four-year Country Strategy for 2005-2008 focuses on lending for infrastructure,
human development, and improving rural livelihoods. The Bank is increasingly focusing
on providing analytical reports on the country’s major development challenges, and
extending practical advice to policy makers by sharing good practices and experience
from within the country and abroad.
Lending
India is one of the oldest members of the World Bank having joined the institution in
1944. New lending to the country in FY06 (July 2005-June 2006) was US$1.416
billion. Of this, US$500 million was from the IDA, the World Bank’s concessional
lending arm, and US$916 million from the IBRD. At end of June 2006, the Bank group
had 56 active projects with a net commitment of about US$ 11.3 billion.
Commitments FY 01 FY 02 FY 03 FY 04 FY 05 FY 06
MACRO INDICATORS
Given the vast development challenges and the modest size of the World Bank Group
programs relative to the population and the economy of India, the Bank Group cannot
support India in every effort toward achieving its Tenth Plan goals and the Millennium
Development Goals. Instead, since 1977 Bank Group strategies have been to engage
selectively in India and primarily at the state levels, with knowledge resources and
financing geared towards reform. The main thrust of the strategy has been to support the
programs of lending reform states in order to create demonstration effect that might
stimulate reforms across other states, or in other sectors of a reforming state. The focus of
IFC activity has been on investments in manufacturing, financial services and
infrastructure.
Recent Bank Group programs have been ambitious in their efforts to catalyze and
expand the state reform process in areas that are central to reducing poverty in India- and
when progress in reforms was slower than expected, Bank strategy was also well
structured to deal with the slowdown in reform implementation that took place in several
states. While concluding that the FY02-04 strategy was broadly appropriate, the review
points to some lessons of experience which suggested an evolution of the strategy going
forward. These include: the need to address growing disparities in state development
performance, especially given the importance to the poorest state for achievement of the
MDGs; the importance of long-term engagement with state on cross-cutting reform
issues; and the disadvantages of concentrating investment lending in states that are
recipients of adjustment lending.
For the Banks ongoing portfolio, India’s portfolio performance declined in FY03 after
five years sustained improvement in most quality indicators and showed mixed results in
FY04 after a number of improvement actions were taken on projects that were either slow
disbursing or closing with large undisbursed balances. These actions resulted in an
improvement in disbursement performance, but also in an increase in the riskiness rating
of the portfolio. The disbursement ratio reached 19.9% at the end FY04 which is slightly
below the Bank average of 21.4% and ratios for other large borrowers such as China
(22%) and Indonesia (27.2%). The percentage of projects at risk increased to 16% in
FY04 compared to 11% in FY03 and the Bank wide average of 16%. Many of these
projects have clearly not been ready for implementation at approval, and hence suffered
one or two years at the outset in which little was disbursed. At current implementation
and disbursement rates, none of the ongoing projects in the portfolio can be completed
within the 5-year implementation period which has been the business standard for Bank
projects in the South Asia region.
The causes of slow disbursement included a weakening of project readiness for
implementation and weakening of follow-up and proactive actions to address slow
disbursing projects. The increase in portfolio riskiness rating results from more candid
reporting and proactive portfolio management, which is reflected in the end FY04 realism
and proactivity indices of 90% and 83, respectively. In order to improve portfolio and
support the strategy for scaling up Bank support to India, the Bank and Government of
India engaged in ways to improve portfolio during FY04 and agrees on a Portfolio
Improvement Strategy.
The Banks lending volumes have been reduced when states have slowed in their
implementation of fiscal, governance and power reforms. The slowdown in some state
reforms reduced Bank financing, during FY03 and FY04 the AAA program of the Bank
was stepped up. The country team continued with reforms and provided non-lending
Technical Assistance in UP when further adjustment lending was put on hold as the states
reform process faltered. Substantial policy advice and non-lending Technical Assistance
have also been provided in states where adjustment lending has been under preparation
namely AP, Karnataka, Tamil Nadu and Orissa. Important analytical work on the
investment climate and fiscal, governance and power sector reforms was also initiated in
states where the Bank had not previously been engaged, including Maharashtra, Bihar
and Punjab.
For IFC programs, commitments in India grew strongly over CAS period, albeit with
considerable variation in response to changing market and regulatory conditions. Over
the last two years IFC achieved record commitment in India, nearly doubling its
portfolio, improving profitability and investing in high impact projects, making India’s
IFC’s second largest exposure. In FY03, IFC committed a record US$348 million and in
FY04 commitments were US$290 millions, with a concentration in manufacturing, as
well as investments in agribusiness, power, oil and gas, finance and health care. The
expansion was mainly in long-term debt, aided by introduction of local currency lending,
which is better suited to sectors such as infrastructure, housing finance and health care
that do not generate foreign exchange
STRENGTHS:
The Bank Group offers a number of strengths:
Firstly, the Bank Group’s ability to gather and share global knowledge and
experience with Government of India
Secondly, the Bank Group has a broad array of tools that it can offer to help
mobilize private financing and foster greater private sector participation in
India’s development.
Thirdly, through lending and investment, the Bank Group can help catalyze
greater effectiveness and more efficient spending towards ultimate goal of
reducing poverty and encouraging India’s sustainable development.
STRATEGIC PRINCIPLES:
To achieve this enhanced impact three strategic principles will underpin the Bank
Group’s work:
Focusing on outcomes: To ensure all of the work of the Bank Group is explicitly
geared towards supporting India’s achievement of its development goals. The
Bank Group will support achievement of these outcomes with all of its finance
and knowledge resources in India; the outcomes will in turn serve as goal posts to
measure the effectiveness of Bank Group support over the medium term
timeframe of the assistance strategy.
Selectivity: Due to complexity of India’s development challenges, Bank Group
programs will necessarily span a wide range of sectors and types of inventions.
Nevertheless selectivity will be applied, to target limited resources to activities
where assistance is welcomed and where contributions can also be most effective.
An important element of this working closely with major donors and financing
partners remaining in India, taking their programs into account and seeking to
work together for co-financing of country-led programs. Lending selectivity will
also be exercised by choosing projects in a way that seeks to maximize their
impact. Selectivity therefore means a greater emphasis on project that either
pilot/demonstrate new approaches for possible scaling up later, projects that move
from successful pilots to lager scale inventions, and projects that supports
expansion of proven government programs on sector-wide basis.
Knowledge provider and generator: The Bank will also aim to substantially
expand its role as politically realistic knowledge provider and generator. To
achieve this shift, changes are envisioned on a number of fonts, includin:
(i) Strengthening the Banks capacity to act as a channel of ides and lessons for
international experience.
(ii) Placing greater emphasis on understanding the motivation of interest groups
and different stakeholders in the reform process.
(iii) Helping clients to better communicate the potential benefits of their reform
programs; and
(iv) Operating on a more strategic and integrated fashion across different
organizational units of the Banks leverage knowledge resource more
effectively.
Cross-cutting reforms at the state level will also remain an important focus. Expansion in
lending for human development and rural livelihoods will depend critically on
availability on IDA resources.
These programs will provide increased opportunity for collaboration across the Bank
Group to promote innovative Public-Private Partnership (PPPs) for infrastructure
development-particularly in power and transport. The Private Sector Development
Strategy suggests some areas where this collaboration might be developed. IFC and
MIGA assistance will encompass activities that fall within the private sector’s role.
IFC will continue to provide equity and loan financing and guarantees to supplement
what is available from Indian financial institutions or capital markets, and will help to
mobilize financing from both domestic and international sources. This will include
pioneering investments in infrastructures and long tenors are required; and investments in
projects which are constrained by limited risk appetite of other investors, including
medium-sized manufacturing countries, agribusiness companies and companies entering
new markets domestically and internationally. IFC adds value to projects it invests in by
mobilizing finance from other sources, advising on structuring, acting as an honest broker
between various project parties and facilitating international partnership, particularly with
other developing countries.
The Bank Group focuses on adding value through advice on environment and social
sustainability, public and corporate governance and the transfer of global knowledge and
best practices. By doing so, IFC promotes higher corporate standards of social and
environmental responsibility and the Bank works to improve implementation of
environmental and social frameworks and strengthen the national and state-level
frameworks for procurement and financial management.
Additionally, Country Financing Parameters, which allow increased flexibility in the
type of expenditures that are eligible for Bank financing in India are also being
developed.
In order to also scale up the impact of the Bank Group’s global knowledge resources
in India, the AAA program is being reshaped to focus on:
(i) Preparation and dissemination of a limited number of major reports on key
issues in India’s development
(ii) Just-in-time activities primarily in response to Government of India’s request
Since India has underutilized trust fund and grant programs offered through Bank Group
in the past, at the request of Government of India, greater effort will be made to enhance
the participation with these programs in the coming strategy period. In particular,
Government of India and the Bank will seek to help strengthen project readiness via
upfront analytical work and strengthen implementation capacity or the capacity of key
institution.
Since 1956, IFC has invested in 210 companies in India, providing nearly $3.5 billion in
financing for its own account and $925 million for the accounts of participants in IFC’s
loan syndication program.
Our held portfolio of $1.26 billion (as of July 2006) makes India IFC's third largest
country of operations. In recent years, we have grown our business substantially, with
new commitments reaching $402.8 million in FY 2006.
To reduce poverty and promote sustainable economic growth, we believe that India needs
a vibrant private sector which will: