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This is a joint post with Mead Over

The new World Bank Group Strategy posted this week for discussion by the Development Committee, the ministerial-level forum that oversees the World Bank and the IMF, provides a solid analytical foundation for what has so far been a messy and disjointed re-organization effort. The release of the paper coincided with a speech by bank president Jim Kim that covered much of the same ground, but the strategy paper digs deeper.  For those of us who believe that the World Bank has a crucial role to play in addressing the problems of the 21st Century, there is much to applaud.

Certainly it gets the diagnosis right: the paper describes how financial and technological change is shrinking the bank’s niche. As it notes, lending is falling relative to developing country GDP amid rising competition from private financial flows. Some Bank clients are fragile and very poor; others have emerged as economic powers but with high inequality and stubborn poverty.  Inadequate arrangements for providing global public goods, especially to address climate change, pose challenges that threaten decades of development progress. The bank’s members—the nations of the world—are pushing for proven effectiveness and results.

Amid all this, the paper argues, the World Bank Group is seen as slow relative to more agile competitors and lagging in some critical skills. The new strategy uses this refreshingly frank diagnosis not only to motivate the need for reorganization, but also to support its direction.

How to respond?  Four ideas in the paper we like: 

“Becoming a Solutions WBG”.  Knowledge, data and results are critical--more perhaps than even the level of financial transfers--though credible partnership does require the Bank to have skin in the game. The paper argues for increased focus on learning and rebuilding technical skills through the creation of about 14 “Global Practices” – a disaggregation of technical skills, such as health and education that are currently grouped into just four “Networks.”  

“Seeking Transformational Engagements” with ambition beyond those of modest individual projects.  An example that springs to mind: the bank’s various components, IDA, IBRD, IFC and MIGA, could work together with private investors and the US government to help supply the electricity needed to accelerate Africa’s development. 

“Taking Smart Risks”  This includes reshaping safeguard policies towards a more agile IFC model and placing greater emphasis on client systems and results.     

Climate Change as one of four issues for “joint WBG learning and collaboration.”  Such an approach—which the paper says “management is currently considering”—could give climate change greater institutional attention than the current arrangement in which climate is seen as a subset of environment. Other areas suggested for similar treatment: fragility and violence, connectivity, gender.

Many of the directions proposed in the paper are broadly in line with previous CGD work on the challenges to the Bank and the future of IDA.   Of course, the devil is always in the details. Here’s four things to watch for (and worry about):

Improved incentives?  Will the implementation plan simply elaborate on the need for managerial attention to innovation?  Or will it adopt a concrete new approach towards rewarding staff for taking reasonable risks, perhaps resembling the proposal Mead co-authored with Martin Ravallion?

Support from the Shareholders?   The new strategy and the reorganization that follows will need support in sensitive areas, including rebalancing concerns over safeguards with concerns for results, and management obtaining a clear mandates to step up the provision of global public goods. The Development Committee discussion may provide an early indication of whether such support will be forthcoming.

Timing and Execution?  President Kim is now nearly two years into a five-year term, and the broad strategic outlines of the planned reorganization are only now being shared with the bank’s members.  We understand that reorganizing a large and complex institution like the World Bank Group is not something that can be done overnight but we also worry prolonged uncertainty risks a drain of critical staff skills.

Better use of trust funds? The paper reveals that trust funds—money provided by donors to support specific activities—now accounts for fully a quarter of the bank’s budget.  Used strategically, these funds can empower the proposed global practice managers, reducing their budgetary reliance on traditional lending.  Global practice managers could then be evaluated on results rather than helping to push loans.  More effective use of these funds could be expected to attract increased contributions of this sort.  The diagram below shows how trust funds could help to supply the missing piece in the new bank: demand for global public goods on par with the borrowing clients’ demand for services.

Figure.  Creative tension between the demand for country-specific lending and the demand for global public goods requires that the global practice managers have their own source of financing, indicated in the diagram by the "missing piece".

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.