IFC Moves Towards Competitive Capped and Transparent Subsidy Use

On March 20, as part of the negotiations between the IFC and the US government over a (now agreed) capital increase for the IFC, World Bank Group president David Malpass issued a letter to US Treasury Secretary Steve Mnuchin promising changes in the way IFC does business. There is a lot to like in that letter–not least around the IFC Compliance Ombudsman, and the commitment to commission an independent, external review of the problematic “total tax and contribution rate” sub-component of the Paying Taxes Indicator of the Doing Business report.

In addition, the letter suggests both an acknowledgement of the importance of competitive, capped, and transparent subsidy provision, as well as some moves towards practicing that approach. Below I’ve outlined some of the key aspects of the letter:

• Regarding competition, the letter says the IFC will “strive to” increase the share of public concessions supported by the Private Sector Window (PSW) that are tendered on a competitive basis by June 2023, and will seek to ensure that at least 35 percent of IFC IDA-PSW supported projects use competitive or open access approaches.
• Regarding capped subsidies, the IFC will seek to ensure that any subsidy for projects is less than 10 percent of project costs and will seek IDA Board approval prior to providing any subsidy above that amount. IFC will also seek to ensure the total subsidy cost across projects to IDA for PSW resources is less than 25 percent.
• Regarding transparency, the IFC commits to report the name, location by city, and sector for financial intermediary subprojects that are the most environmentally or socially concerning (category A and some category B). IFC will also encourage and, in partnership with IDA, assist all countries where public-private partnerships are supported by the PSW to release information in accordance with the World Bank Group Framework for Disclosure in Public-Private Partnerships. That is on top of the fact that the IFC also started to disclose the amount of blended finance used for projects mandated after October 2019.

There is still a long way to go–the World Bank Group is still ignoring its own guidance and regulations when it uses IDA money to fund non-competitively awarded PPPs through the IFC–and “striving” to reduce that problem is only a first step. The IFC is ignoring the World Bank Group’s own guidance when it invests in secret deals over public assets–“assisting countries” is not really enough. There should be far more transparency in on-lending and far greater use of competitive approaches in pursuit of public policy goals.

But these commitments from the IFC are a real movement towards better practices in subsidy use and development finance more broadly. And they make the IFC a comparative leader amongst DFIs in the transparent, efficient use of public finance in the private sector. Congratulations both to IFC management for committing to reform and to Congresswoman Maxine Waters and her House Financial Services Committee staff who saw that a bigger IFC needed to be a better IFC–and worked long hours to achieve that outcome.