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                               IDA17 REPLENISHMENT – SECOND MEETING
                                            July 1-4, 2013
                                       Chairperson’s Summary

The second meeting of the IDA17 Replenishment, hosted by the Government of Nicaragua in Managua
during July 1-4, brought together the IDA Deputies and Borrower Representatives to discuss four papers
that set out Management’s proposed policy framework and range of possible financing scenarios for
IDA17. The meeting included observers from countries which are considering becoming IDA donors
(Azerbaijan, Indonesia and Thailand), observers from other institutions (the African Development Bank,
the Asian Development Bank and the International Fund for Agricultural Development), from the g7+
Secretariat as well as representatives from Executive Directors’ offices.

Maximizing Development Impact. Participants welcomed the presentations on the World Bank Group
(WBG) Strategy and the change process, and on the IDA17 overarching theme of “Maximizing
Development Impact”. Participants underscored the need to align IDA17 with the WBG strategy,
acknowledging that IDA is the main instrument for supporting the poorest countries in achieving the
WBG twin goals of ending extreme poverty and boosting shared prosperity in a sustainable manner.
Overall, Participants appreciated the narrative on IDA17 which presents IDA as responding to the rapidly
changing global landscape and highlights the need to place more focus on leveraging resources. The
narrative also puts in context the rationale for the IDA17 overarching and special themes which respond
to the evolving needs of IDA clients.

In the context of leveraging knowledge and private and public resources, Participants welcomed the One
World Bank Group approach, including the emphasis on enhanced synergies among IDA, IFC and
MIGA. The importance of earlier consultations with IFC in the formulation of country strategies and the
right incentives for an engagement in IDA-only countries were noted. Participants also called for making
more explicit the synergies with IBRD, emphasizing the importance of a “four-for-one” package in the
context of IDA17, particularly in blend and graduating countries and including the further use of
guarantees and IBRD enclave financing. They also requested elaboration on how to operationalize Joint
Business Plans and track their contribution to the new World Bank goals. Participants welcomed the
focus on leveraging public resources, which is IDA’s traditional strength, and underscored the need to
strengthen public financial management, including tax policy and administration.

On “value for money”, there was recognition that the focus should be on both results and cost-
effectiveness. Several Participants noted that value-for-money does not necessarily imply the least cost
option, particularly in complex projects and fragile contexts. Many Deputies asked Management to
develop indicators for the IDA17 Results Measurement System (RMS) that include measures of quality
and costs effectiveness. Regarding the science of delivery, several Participants endorsed proposals for
more systematic use of evidence-based methods in project design, and more flexibility in project
implementation with monitoring and evaluation for mid-course corrections. Several Participants stressed
the importance of providing appropriate funding for this purpose. There was also a call for IDA to
promote knowledge transfer and help IDA countries to harness South-South cooperation, technology
innovation and industrialization.

Participants made a number of suggestions to further strengthen the RMS, building on the strong
achievements of IDA16. For IDA17, many Participants called for clearer links to the WBG goals and for
a more coherent narrative and linkages among the various RMS Tiers and the Replenishment’s themes.
Participants underscored the need for a more ambitious RMS and some requested that Management
continue to consult on the RMS before the next replenishment meeting. They called for the RMS to be a
strategic and ambitious tool to manage for results, including for measuring knowledge results, and noted
the need to be selective about which indicators are used. While limiting the number of indicators (now
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80) seems necessary, clear priority should be given to relevant indicators of high quality with a focus on
results and outcomes, instead of input indicators. Management agreed to continue the discussion on the
RMS over the next weeks and encouraged Participants to provide input for the improvement of indicators.

Inclusive Growth. Participants welcomed the focus on inclusive growth as central to achieving the WBG
twin goals of ending extreme poverty and boosting shared prosperity, emphasizing the need to identify
and support country specific solutions and strategies. Overall, Participants supported the proposed focus
on jobs, financial inclusion and natural resource wealth management. They highlighted the importance of
the four-for-one approach and called for more ambition on policy commitments and RMS indicators to
track progress and a better connection between the special themes. Several Participants emphasized the
role of country diagnostics and welcomed the focus on data. They underscored the importance of
operationalizing the 2013 WDR on jobs and taking into account the distributional aspects of inclusive
growth through social protection, taxation and expenditure policies. They also welcomed the
commitment to work closer with other international organizations, like the ILO on measurement, and
noted the important role for IFC in the jobs agenda.

Gender Equality. Participants recognized the significant progress made in gender mainstreaming in
IDA16. At the same time, they emphasized the need to increase the level of ambition in the policy
commitments for IDA17, in particular by deepening the integration of gender into strategies and
operations and placing greater emphasis on measuring the achievement of project gender equality
objectives and the collection of gender disaggregated data. Some Participants felt that the gender
informed standard was not sufficiently ambitious and requested clarification of what would constitute
“follow up” on gender mainstreaming. Participants also stressed that more needs to be done to
mainstream gender in lagging sectors and in FCS, on MDG5, and on women’s economic empowerment,
as well as the importance of voice and agency. Several Participants urged a greater focus on addressing
gender-based violence, particularly in FCS. They stressed the need to measure what works on the ground,
and to use this feedback to scale up successful approaches, while working closely with other partners and
leveraging WBG synergies. Several Participants emphasized the continued importance of country and
regional solutions and the need to take account of cultural sensitivities.

Climate Change. Participants welcomed IDA’s focus on mainstreaming climate change, disaster risk
management and low-carbon development in IDA countries, emphasizing the importance of sustainable
development as a critical element for achieving the WBG twin goals. They acknowledged that IDA has a
critical role to play in helping countries build resilient development. They also agreed on the need to
scale up IDA’s efforts to help strengthen institutional capacity to manage climate and disaster risks, and
emphasized the value of strong collaboration with other development partners and the private sector.
They broadly supported the package of proposed policy commitments to deepen engagement in IDA17,
particularly the commitment to integrate climate risk assessment in all new operations. They also called
for even more ambition in certain aspects, particularly in relation to the quality of how climate and
disaster-related risks are integrated in country strategies. In addition, they asked for more clarity on how
IDA would scale up support to develop country-led plans and investments for managing climate risks,
and for more clarity on the links to other sources of financing for climate change adaptation such as the
Green Climate Fund. Some emphasized the costs of adaptation for IDA countries, the challenges posed
by lack of affordable access to energy, as well as the incremental costs of low-carbon operations.

Fragile and Conflict-affected States. Participants welcomed the informal briefing on the preliminary
findings of the Independent Evaluation Group on its ongoing evaluation of the Bank’s work in FCS,
which was followed by Management’s presentation of the FCS policy agenda for IDA17. Participants
welcomed the recent improvements in project portfolio performance, staffing and budgeting for FCS.
Participants noted that IDA flows to FCS have been stagnating since IDA14 and that stepping up efforts
in FCS is central to achieving the goal of ending extreme poverty. In that context, they expressed broad
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support for the Bank’s five-point reform agenda to increase its effectiveness in FCS, which includes
efforts to improve the design of country assistance strategies, operational flexibility, knowledge and
learning, human resources and enhanced financing for FCS. They emphasized the importance of
improving risk management in fragile contexts. On security and justice, some Participants noted that IDA
needs to partner with others rather than lead. There was also broad support for Management’s proposed
policy commitments for FCS, especially the commitments for joint business plans with IFC and MIGA in
FCS. Several Participants called for better inclusion of fragility, jobs and gender in country assistance
strategies for FCS. Others reiterated the importance of regional projects for FCS. They encouraged more
emphasis on partnerships, including with the regional development banks and the UN which could be
reflected in the RMS as appropriate. On the IDA resource allocation framework for FCS, there was broad
support for creating a “turnaround” window in IDA17, raising the base allocation, and for stronger links
between portfolio performance and allocation. Most Participants supported reducing the exponent of the
country performance rating in the allocation formula from 5 to 4, while others expressed reservations.
Participants requested a technical note elaborating implementation aspects of the “turnaround” regime as
a key pillar for implementing the stronger focus on FCS. On the MDRI netting out mechanism, some
Participants again expressed support for the proposed elimination while others emphasized the need to
maintain the MDRI netting out to avoid moral hazard. There was no consensus on the elimination of the
MRDI netting out.

The Demand for IDA Resources and the Strategy for their Effective Use. Deputies regarded the range of
scenarios as realistic, reflecting on the one hand financing constraints for many contributing partners and
on the other hand the need to deliver strong results toward achieving the WBG goals. Some noted that the
proposed agenda for IDA17 was ambitious and would require an ambitious replenishment. Deputies
provided useful guidance on their priorities and principles which will guide the preparation of three new
financing scenarios. Based on this guidance, the range of financing scenarios would be narrowed from
the five presented in Managua, to three new scenarios reflecting the principles and priorities discussed,
with a financing volume in the range of scenarios 2 to 4 (ranging from US$47 billion to US$52 billion).

Among the principles outlined by Deputies, there was broad support for scaling up financing for FCS in
all scenarios, including through the creation of the “turnaround” regime, while most also emphasized the
need to protect resources for non-FCS at least in nominal terms relative to IDA16. Most Participants also
expressed strong support for scaling up financing of regional programs, but expressed skepticism about
proposed rule changes with several Participants requesting a case-by-case approach. Management agreed
to prepare a short note on the proposed changes to the criteria for regional transformational project to
address queries on this for the next replenishment meeting. On the Crisis Response Window (CRW),
most Participants felt its continuation was important, and many indicated that its size could be lower than
the proposed 3 percent of the total replenishment volume. Others recommended it be kept large but that it
be recycled more effectively over the three years. On arrears clearance, most agreed with the level
proposed by Management, but some suggested more flexibility in the use of this set aside if unused, and
that these resources, as well as a share of unused CRW resources, could be reallocated at the IDA17 Mid-
Term Review. On transitional support, Participants acknowledged the need for IDA to continue support
for India in IDA17 and some indicated that such support should be included in all scenarios. Most
indicated that the amount of the support would depend on the size of the replenishment and the
availability of resources through concessional loans. Several Deputies strongly encouraged IBRD to lean
forward to address the needs of India and the smaller IDA graduates, and urged early clarification on the
possibility of an increase in the Single Borrower Limit by the IBRD Board in order to inform the decision
on the volume of IDA transitional support. Several Participants also highlighted the importance of a
smooth transition for graduating countries, including the further use of instruments such as guarantees.

On IDA’s financing sources, many Participants welcomed the proposal to introduce concessional loans as
a mechanism to provide additional resources to IDA countries and attract new partners and sources of
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finance – particularly given the unique resource constrained environment for a number of partners, the
expected drop in internal resources and the proposed transitional support – while several expressed
cautious views. They noted that, without concessional loans, the overall IDA17 envelope would be
extremely constrained. Most speakers underscored that grant contributions should remain at the core of
IDA’s financing and noted the need to ensure additionality, transparency and IDA’s long term financial
sustainability. Several supported the 80/20 reference baseline under which partners that want to
contribute concessional loans to IDA17 would aim to provide at least 80 percent of their IDA16 basic
contribution in the form of grants while providing loans with a grant element equivalent to at least the
remaining 20 percent. Management noted the need for flexibility in the application of the framework,
which most Participants supported. Participants discussed the proposed loan terms and some noted that
concessional loans should be denominated in SDRs while others called for IDA to continue to explore
options for non-SDR loans. There were divergent views on the appropriate discount rate that would
calibrate incentives between loans and grants. While some favored a lower discount rate, others indicated
the need for a discount rate higher than currently proposed by Management. Several Participants
proposed that the loan providers should bear the credit risk associated with the provision of concessional
loans and agreed that grant contributors should not provide additional resources to cover the debt service
for loan providers. Management will revise its proposal on concessional loans to reflect the guidance
received.

Most Participants endorsed the hardening of lending terms for IDA-only countries as illustrated in the
financing scenarios. Management noted that this change is not expected to have a material impact on
IDA countries’ debt sustainability ratings, even if applied by other MDBs.

Some Participants recognized the need to reduce the financing gap for debt relief costs under MDRI,
HIPC, arrears clearance and grant principal foregone and that IDA would require full financing of these
costs to achieve the objective of full donor compensation. Several Participants supported the introduction
of a pilot program for project participation after the start of IDA17 and some noted that such
participations should not benefit from preferred creditor status.