IDA14 Additions to IDA Resources: Fourteenth Replenishment Working Together to Achieve the MillenniumDevelopment Goals International Development Association February 28,2005 ACRONYMSANDABBREVIATIONS A A A Analytic and Advisory Services ACS Advance Contribution Scheme CAS Country Assistance Strategy CDF ComprehensiveDevelopment Framework CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Review CPIA Country Policy and Institutional Assessment CPR Country PerformanceRating cso Civil Society Organizations DAC Development Assistance Committee DPO Development Policy Operation DSA Debt Sustainability Analysis DSF Debt Sustainability Framework EC European Commission EFA Education For All ESW Economic and Sector Work FSAP Financial Sector Assessment Program FY Fiscal Year GEF Global Environment Facility GFATM Global Fundto Fight AIDS, Tuberculosis and Malaria GNI Gross National Income GNP Gross National Product HIPC Heavily IndebtedPoor Country HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome HNP Health, Nutrition and Population IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICR Implementation Completion Report IDA International Development Association [FC International Finance Corporation [LO International Labor Organization [MF International Monetary Fund [OC Instrument of Commitment JSA Joint Staff Assessment KPI Key Performance Indicators LICUS Low-Income Countries Under Stress MDB Multilateral Development Bank MDG MillenniumDevelopment Goals M&E Monitoring and Evaluation MIGA Multilateral Investment Guarantee Agency MSME Micro, Small and Medium Enterprises VIVA ModifiedVolume Approach VGO Non-Governmental Organization TPV Net Present Value 3BA Output-Based Aid 3DA Official Development Assistance 3ECD Organization for Economic Cooperation and Development 3ED Operations Evaluation Department 'BA Performance-Based Allocation 'ER Public Expenditure Review 2MDB Regional Multilateral Development Bank 'RSO Poverty Reduction Support Operation PRSP PovertyReductionStrategy Paper PSD PrivateSector Development QAG Quality Assurance Group SDR Special DrawingRights SSP Sector Strategy Paper TSS Transitional Support Strategy UN UnitedNations WBG World Bank Group WHO World Health Organization TABLE OF CONTENTS EXECUTIVE SUMMARY .............................................................................................. i INTRODUCTION........................................................................................................... 1 SECTIONI: IDA'SSTRATEGYFOR POVERTYREDUCTION................................. 4 A. 4 B. The Context: FightingPovertyin a GlobalAge................................................... IDA'SRole: Country-LedandPerformance-Driven............................................ 5 7 D. C. IDA`s Strategy: The Twin Pillars........................................................................ Workmg at the CountryLevel: Ownershipand Strategic Selectivity .................11 F. E. GlobalandRegionalPublicGoods .................................................................... 13 Partnerships....................................................................................................... 14 G. ImpactandMonitoringResults.......................................................................... 15 H. Transparency andAccountability inIDA........................................................... 15 SECTIONI1. SPECIALTHEMES FOR IDA14........................................................... 18 A. Growthin IDA Countries..................................................................................... 18 B. PrivateSector Development................................................................................. 23 C. DebtSustainability andGrants inIDA14............................................................. 25 D. ResultsMeasurement inIDA14........................................................................... 28 E. Working Together at the CountryLevel: The Roleof IDA.................................. 31 SECTION111: HIPC INITIATIVE ............................................................................... 36 SECTIONIV: MANAGINGIDA'S FINANCIAL RESOURCES................................ 37 A. ProspectiveNew Members andDonors.............................................................. 37 B. CommitmentAuthority. GrantFinancingandRiskManagement ....................... 37 Burden-SharingandIBRDTransfers................................................................. 38 D. C. EffectivenessandAdvance ContributionScheme .............................................. 39 E. ContributionProcedures.................................................................................... 40 F. AdditionalContributions.................................................................................... 41 G. Voting Rights .................................................................................................... 41 SECTIONV: RECOMMENDATION.......................................................................... 42 ANNEXES Annex 1. of the Performance-BasedAllocation System for IDA14 Summary Annex 2. ResultsMeasurement inIDA14 Table 1. Tier 1:IDA14 CountryOutcomes Indicators Table 2 Tier 2: MonitoringIDA's Contributionto Country Outcomes . Table 3. MonitorableActions for IDA14 Annex 3 -IDA Boardof Governors' Draft Resolution Table 1-Contributionsto the FourteenthReplenishment Table 2 -Subscriptions, Contributionsand Votes Annex 4 -DocumentsProvidedfor the IDA14 Replenishment EXECUTIVE SUMMARY The International Development Association (IDA) supports the efforts of the world's poorest countries to reduce poverty, improve living conditions and boost economic growth. As the world's largest provider of financial resourcesto low-income countries with little or no access to market-based financing, IDA i s a cornerstone of the global effort to help these countries achieve their development objectives. IDA places special emphasis on meetingthe exceptional development challenges faced by Africa - aiming to direct half of its assistance to Africa subject to performance - within its broad commitment to support all the world's poor countries. IDA is a key supporter of the partnership between developed and developing countries around the Millennium Development Goals (MDGs),helping countries make the policy improvements needed to ensure that increased donor funds channeled through IDA and other agenciescan be usedas effectively as possible. Given the time it takes to reap the benefits of investments in growth and poverty reduction, the three years of the IDA14Replenishment Period (2005-2008) represent a criticaljuncture inthe effort that low-income countries are making to reach these goals. Resourcesavailable for development are scarce relative to the needs of low income countries. Central to all of IDA's work therefore i s the objective of ensuringthat its resources are usedas effectively as possible. Key elements of effectiveness include making country-owned poverty reduction strategies the basis of IDA'Sassistanceto client countries, focusing more sharply on results, and allocating IDA's resources according to country performance. IDA i s a leader in ensuringthat financial assistancei s driven by poor countries' performance in terms of sensible economic policies, good governance and a focus on poor people. The policy, operational and financial framework that underpins IDA'Seffort to reduce global poverty builds on the guidance set out in successivereplenishment documents. This report sets out the key elements of IDA's current strategic framework and recommends that this framework continue to be implementedas IDA's basic development approach. The report also sets forth additional recommendations to strengthen IDA's effectiveness as a development agency and as a partner to poor countries. These recommendations are the result of discussions that took place in 2004 and 2005 with representatives of donor countries, the IDA Deputies, and representatives of borrower countries (collectively referred to in this report as "Participants").' The recommendations contained in this report center on five special themes. These are: (1) growth inIDA countries; (2) private sector development; (3) a new system for allocating grants, designed to help IDA countries ensure debt sustainability; (4) a new results measurement system for IDA14; and (5) improving how IDA works with development partners. Additional recommendations span all of IDA's work, relating to transparency, disclosure, the allocation of IDA resources, and finally, IDA's finances and the size of the IDA14 replenishment. ' As in IDA13, borrower representatives participated inthe replenishment discussions, providing borrower country perspectives on the issues under discussion. However, in a formal sense, the recommendations are those of the Deputies. SUMMARY OF CONCLUSIONS AND RJXOMMENDATIONS Participants agreed on a series of operational, policy, and financial recommendations to reinforce the effectiveness of IDA assistance in ensuring lasting reductioninpoverty and making progress toward the MDGs. A. Growth inI D A Countries Key Bank Instruments and Priorities For Growth Promotion. 9 Participants requestIDAto ensurethat IDA supporttocountries preparing Poverty Reduction Strategies (PRSs), and Country Assistance Strategies (CASs) for IDA countries place appropriate weight on the importance of economic growth for poverty reduction in IDA countries, and on private sector development as a critical means for promoting stronger growth. 9 Participants requestthat the CAScontinue tobe strengthened, andthat areview of the results-based CAS pilot program be carried out to inform the design and mainstreaming of the results-based CAS during IDA14. Strengthening the Quality and Impact of IDA'SAnalytical Work. P Participants stress the importance ofEconomic and Sector Work (ESW) in providing an informed basis for equitable growth and poverty-reducing policies and recommendgreater emphasis on analytical work which integrates macroeconomic, sectoral and structural dimensions of growth; and they call for additional efforts to provide high-quality ESW which i s timely and directly usable by policy-makers, thereby increasing its development impact. 9 Participants request that for small andvulnerable economies, andLow-Income Countries Under Stress (LICUS) that do not have large lendingprograms, IDA work with other donors and development partners to cover ESW gaps, carefully tailor its ESW to address issues of particularly highpriority in the country context, and continue to develop innovative and more effective means of engagement to support the needs of these countries. P Participants request an assessmentduringIDA14of the coverage of existing ESW gaps, the overall progress made in improving ESW quality (including collaboration with partners), implementationof the ESW results framework, and disclosure of ESW products. Financial Assistance P Participants call for IDA to assure adequate fiduciary safeguards underpinning policy-based operations. 9 Participants callfor a substantialincreaseinIDAcommitments ininfrastructure to enhance growth and encourage access by the poor to services and markets, while maintaining strong environmental and social safeguards. B. Private Sector Development Diagnostics, Advisory and Non-Lending Technical Assistance 9 Participants callonIDAto strengthenanalytic/diagnostic work, non-lending technical assistance, knowledge management, and training activities to help strengthen the private sector in IDA countries. 9 Participants urge increasedcoverage ofInvestmentClimate Assessments (ICA) and other investment climate country diagnostics duringthe IDA14period. 9 Participants requestthat IDAreflectfindingsof diagnostic studies inCASs andin their projects and programs, and shift toward monitoring key indicators in partnership with other stakeholders, as better baselines of information on countries' investment climates are established. 9 Participants urgeIDA to strengthen collaboration with other WorldBank Group institutions as well as with external partners. Supporting Micro, Small and Medium Enterprises (MSMEs) 9 Participants recommendthat IDA supportMSMEs through market-based approaches, document successes and lessons for adoption by other countries, and report on IDA-IFC collaboration on MSMEs in Africa at the IDA14Mid-Term Review. Private ParticipationinDelivery of Infrastructure and Social Services 9 Participants ask for areview of the Output-BasedAid (OBA)pilotprojects at the IDA14 Mid-Term Review. C. Debt Sustainability and GrantsinIDA14 9 Participantsrecommendthat acountry's riskof debt distress bethe primary grant eligibility criterion in IDA14. They agree that IDA should adopt the Joint Bank- FundDebt Sustainability Framework (DSF) for low-income countries as the analytical basis to link debt sustainability and grant eligibility, and that it should allocate grants during IDA14 usingthe revised debt sustainability thresholds put forward by Bank and FundManagements in November 2004. P Given that poor countries are especially vulnerable to exogenous economic shocks, Participants encourage further work by the Bank, drawing on its collaboration with the Fund, to resolve the analytical and practical difficulties surrounding financing to smooth countries' adjustment to shocks. They request - 1v - that Management prepare a paper for the IDA14 Mid-Term Review on the feasibility of strengthening countries' response to shocks. Eligibility for IDA Grants 9 Participants recommendthat IDAgrant eligibility be limitedto IDA-only countries as defined inFebruary 2005.2 Grants would initially be based on threshold-based ratings usingexisting debt information, until a system fully based on forward-looking assessments andjudgments about countries' debt sustainability becomes operational. Participants urge that rapid progress be made inthe design andimplementation of the forward-looking aspects of the DSF, to ensure that grant eligibility can be determined on the basis of a comprehensive assessment of countries' debt sustainability. They ask for a proposal to be presented by the IDA14 Mid-Term Review. > Participants recommend that grant financingby IDA should not create space for imprudent new borrowing, and that a mechanism therefore be devised whereby a country could cease to be eligible for grants if its govemment or public sector entities contract or guarantee new loans from alternative sources of financing in an excessive or unsustainable manner. They request that a more specific proposal to address the "free rider" issue be presentedto the IDA's ExecutiveDirectors before end-FYOS. Allocation of IDA Grants 9 Participants recommend the adoption of amodified volume approach (MVA), with the application of a 20 percent volume discount on grants, to strike an equitable balance in the allocation of IDA resources across countries. 9 Participantsrecommend that the volume discount be subdivided intotwo components, each addressing a different objective: (i) an incentive-related portion (11 percent), to help maintain the strength of IDA's performance-based system (to apply to all countries except those eligible for exceptional post-conflict allocations); and (ii) a charges-related (9 percent) portion, to finance foregone charge income on IDA14 grants (to apply to all countries). 9 Participants recommendthat the resources from the incentive-relatedelement be reallocated to IDA countries on the basis of performance, usingIDA's Performance-Based Allocation (PBA) system (with the exception of countries eligible for exceptional post-conflict allocations, blend countries, and hardened- terms countries). 9 Given the importanceof preservingIDA's financial strengthover time, Participants note that the overall grant share i s estimated to be around 30 percent of IDA14 resources, and request that IDA Management report periodically on the overall grant share and implications for IDA's finances. Gap countries (with per capita incomes above IDA's operational cut-off for more than two consecutive years) are not eligible for IDA grants. - v - Financingof IDA Grants P Participantsrecommendthat the resources from the charges-relateddiscount on grants be made available through a "hard terms" lending window restricted to creditworthy blend countries with per capita incomes below the operational cut- off for IDA, but with an active IBRDlending program. P Participants agree that the foregone principalreflows will befinanced through additional donor contributions on a pay-as-you-go basis. D. ResultsMeasurement inIDA14 Participants recommend that IDA work to further strengthen its efforts to monitor progress and measure results of IDA projects and programs. They ask IDA to implement a two-tiered system to monitor: (i) progress on aggregate country outcomes, and (ii) IDA's contributionto country outcomes. Tier 1: Monitoring Country Outcomes P Participantsrequest that IDA monitor aggregate progress on 14country outcome indicators (Annex 2, Table l),report on them every three years inline with IDA replenishments, and report on progress inimplementing IDA's results-related mandates (see Annex 2, Table 3) at the Mid-Term Review. Participants also request that IDA-funded projects be designed to support monitoring by countries of core outcomes. Tier 2: Monitoring IDA's Contributionto Country Outcomes P Participantsrequest that IDA assess key aspects of IDA's contributionto country outcomes, and that Management monitor and target the cumulative introduction of results-basedCASs during IDA14 to ensure progress toward results reporting at this level. They request that all CASs initiated after January 2005 be results- based. P Participantsrequestthat Management monitor the extent to which results frameworks are incorporated into the design of IDA-financed projects by explicitly assessing the results framework underpinning project design in quality- at-entry assessments. P They request that Management implementa resultsframework for IDA projects and programs that includes indicators connected to a timeline with baseline data and periodic assessments of project and program performance against defined expectations. They further requested that, over the course of the IDA14 period, Management work to ensure that 100percent of IDA investment projects initiated after July 1,2004, and Development Policy Operations (DPOs) for which Concept Review takes place on or after September 1, 2004, include such frameworks. - v1 - 9 Participantsrequest that Management: monitor andtarget the quality at entry of IDA operations and the share of IDA operations that successfully achieve their development outcomes; work to improve the share of project Implementation Completion Reports (ICRs) with average satisfactory outcome ratings; work to decrease the number of multi-year problemprojects; foster a `culture of results' at both the country-level and among IDA management and staff; and monitor progress on selected aggregate project outputs infour sectors: health, education, transport and water. Improving Statistical Capacity inIDA Countries: k ParticipantsurgeIDAtoplay aproactive roleincoordinating efforts to strengthen capacity in compiling and using statistics inIDA countries. They ask IDA to help IDA countries prepare statistical capacity-building actionplans; to work with other partners to harmonize international household survey work so as to increase the effectiveness, timeliness and comparability of poverty information; and to report annually to IDA'SExecutive Directors on efforts to improve statistical capacity. E. Working Together at the Country Level: The Role of IDA Participants call on IDA to work with other donors and development partners to builda better harmonized development assistance system with lower transaction costs, basedon a common framework of results, alignment of donor efforts, and stronger and more transparent financial management and capacity in IDA countries. Once agreement has been reached in the donor community on a framework for monitoring progress on harmonization, IDA shouldapply the relevant agreed indicators to monitor progress on harmonization in its own operations, and report periodically. Inaddition, IDA would include harmonization indicators in CASs and as part of its Key Performance Indicators (KpIs) program. Participants urge IDA to capitalize on its comparative advantages, especially depth of technical knowledge and expertise, its partnership with the IMF,and its country presence. Strengthening the PRS process Participants affirm the central role of the Poverty Reduction Strategies (PRS) in the delivery of coordinated aid. They call for further efforts by IDA and other donors to strengthen the PRS and increase the ability of countries to take charge of the implementation and evaluation of these strategies, by strengthening public financial management systems and promotinga stronger link of the PRS to national decision- making and budgetary processes. To advance this agenda they call on IDA to: 9 Strengthenthe realismandcountry ownership of Poverty ReductionStrategy Papers (PRSPs) by linking them more closely to countries' budget processes, and encouraging consideration o f PRSPs by national legislative bodies. 9 Undertake more upstreamanalytical work andfollow-up advice, particularly in the area of public finance. - vii - 9 Carry out moreworkjointly with the recipient government andother donors, and share the results of this work as widely as possible. 9 When thereforms supportedby Development Policy Operations (DPOs) provided by IDA are expected to have significant distributional impacts, assess these impacts through poverty and social impact analyses (PSIA) or other analytical studies. Base these assessments on analysis undertaken by the borrowing country, other development agencies, civil society organizations, or the Bank's own work. Where the IDA undertakes these assessments, invite the recipient and other donors active in the country to participate as fully engaged partners. k Reportonprogressmadeby IDAinimplementingtherecommendations of the Bank's Review of World Bank Conditionality by the IDA14Mid-Term Review. 9 Furthermainstreamefforts at the country levelto improve the coverageand quality of statistics as well as policymakers' capacity to interpret the statistics. k Provideanalytical support to respondto the needsof small or fragile countries that do not have full or formal PRSPs. RegionalPrograms 9 Participants recommendacontinuation of analyticalandfinancial support for regional programs, to support deeper regional economic integration, inparticular regional infrastructure, and to support national and regionalprograms that build implementation capacity and increase donor harmonization and coordination. LICUS, Smalland Vulnerable States k Participants urgeIDAtowork with other donors to better coordinateefforts in LICUS countries, and to make further headway in expanding opportunities for reform and turnaround, emphasizing knowledge, a highly focused reform agenda, and capacity-building. They welcome the fact that the Bank looks forward to deepening its collaboration with the UNin the areas of conflict prevention and reconstruction, following the report of the UNHighLevel Panel on Threats, Challenges and Change on reformproposals inthis area. 9 Participants requestmoreanalytical support to small andfragile states, which generally do not have a PRSP or a substantial lendingprogram. They support the modificationinthe IDA allocation formula to increase the base amount available to all IDA countries from SDR 3 million to SDR 3.3 million. They urge the Bank to coordinate its efforts in such states with other partners, especially the RMDBs. F. Replenishmentof IDA Resources Deputies recommend that IDA14 donor contributions of SDR 14.1billion be provided so as to achieve a total replenishmentof SDR 24.2 billion during the IDA14 period. Deputies pledged substantial resources towards this goal and urge continuing - viii - effortsto completethe requiredfunding. Deputiesalso emphasize the importanceof continuedand substantialtransfers from IBRDnet incometo IDA. Deputiesrecommendthat IDA's costs of HIPC debt relief be coveredunder IDA14 duringthe IDA14period. Deputiesalso recommendthat resourcesbe providedto replaceIDA's foregonecharge incomedue to IDA13 grants. Deputiesnote the importanceof providingtheir Instrumentsof Commitment(IOC) as early as possible,to enable IDA to extendgrants duringthe early part of the IDA14period. - 1 - INTRODUCTION 1. The International Development Association (IDA) was established in 1960 to support the efforts of the world's poorest countries to reduce poverty, improve living conditions and boost economic growth. IDA resources are provided as long-term concessional loans or as grants to 81 low-income countries to help them achieve their development objectives, including the MillenniumDevelopment Goals (MDGs, Box l).3 IDA is a key supporter of the partnership between developed and developing countries around the MDGs, helping countries make the policy improvements needed to ensure that increased donor financing channeled through IDA and other agencies can be used as effectively as possible. 2. IDA resourcesfinance projects and programs that helpbuildand sustain the policies, institutions, infrastructure and human capital neededfor equitable and environmentally sustainable development in low-income countries. This helps reduce poverty, allows more people to participate in the mainstream economy, and ensures that people can lead longer, healthier and more productive lives. Improving living standards for the world's poor i s a long-term task that requires close partnerships, and a strong focus on both the efficient use of resourcesand on the outcomes they generate, as well as on ensuring resource flows that are sustainable and predictable over the mediumand long term. In this, IDA plays its part, working closely notjust with governments, but also with other international organizations, donor agencies, the private sector and civil society. IDA'Saim is to operatewith the greatestpossible transparency; safeguard and account for its resources in all its operations; and measureits impact and the results it achieves. 3. As the world's largest single provider of concessional resources for low-income countries, IDA i s a cornerstone of the efforts by the international community to achieve countries' development goals. Annual commitments inrecent years have ranged from $7 billion to $9 billion, and IDA i s the most significant source o f external support for many countries' growth and development objectives, as well as for specific infrastructure and sectoral priorities critical to MDGachievement, such as education and health. IDA provides its assistance inaccordance with country-owned strategies developed through country-led consultative processesand reflected where available inPoverty Reduction Strategy Papers (PRSPs). 4. IDA'Sresources come from several sources, the largest of which is contributions from donor countries provided according to agreementsreached duringperiodic replenishmentnegotiations, which are normally heldevery three years. Other important sources are repayments on outstanding credits, including from the many countries that have graduated from IDA, some of which are now contributing to IDA as donors, as well as IBRDnet income transfers and IDA investment income. 5. Representatives of donor countries (the "IDA Deputies") and representatives of borrower countries (collectively referredto in this report as "Participants"), discussed the Fourteenth Replenishment of IDA resources (IDA14) over a series of meetings beginning in February 2004.4 The meetings were chaired, initially by Jeffrey Goldstein', then ~ ` As endorsed by Heads of State and Government in the U.N. General Assembly on September 8, 2000. IDA 14 meetings: February 18-20,2004, in Paris: JUIY9-1 1, 2004, in Hanoi; October 4-6, 2004, in Washington DC; December 13-14, 2004, in Athens; and February 22, 2005, inWashington DC. - 2 - Managing Director of the World Bank, and subsequently by Geoffrey Lamb, Vice President and Senior Counselor to the President of the World Bank. Participants sought the views of other stakeholders, including through consultations with Asian opinion leaders inHanoi, Vietnam inJuly of 2004, and by inviting comments from civil society on the draft report. Policy papers discussedat the replenishment meetings, as well as the summaries of the meetings are available on IDA's external website.6 6. This report sets out the Participants' conclusions andrecommendations for the IDA14periodarising from discussions at the Replenishment meetings, which covers the three years between July 1, 2005, and June 30,2008. The report points to the enduring core elements of IDA's policy framework (Section I), and gives additional guidance in selected areas where the Participants thought this was neededto further strengthen IDA's effectiveness (Section 11). Several innovations are particularly noteworthy. First, the report outlines a more robust results measurement system to be implemented during IDA14, which tracks key indicators of country outcomes and measuresIDA's contribution to those outcomes. Second, the report provides a new approach to grant allocation that uses the likelihood of debt distress as the primary determinant of eligibility for grant financing. This approach i s based on assessments of countries' debt sustainability and performance, as well as on their need for resources, while preserving the long-term strength and financial capacity of IDA as a key partner of the world's poorest countries. Third, it ushers inthe full disclosure of IDA's Country Performance Ratings (CPR), inrecognition of the importance of transparency in IDA, including in the allocation of IDA'Sresourceson the basis of performance. Lastly, the report contains recommendations regarding growth, private sector development, and donor coordination and harmonization issues, which were topics for special consideration in the IDA14 discussions. 7. The report i s organized as follows. Section Isets out IDA's current strategy for assisting countries in their efforts to reduce poverty. Section I1presents the guidance Participants gave on the five special themes they selectedfor special attention during the replenishmentdiscussions, including growth and private sector development, debt sustainability and grant allocation, results measurement inIDA14, and improving how IDA works with development partners. Section I11reviews agreementson HIPC and the financing of IDA's HIPC-related costs. Section IV reviews the framework for managing IDA's financial resources. Section V sets forth the Participants' request to the Executive Directors to recommend to the Board of Governors the adoption of the draft IDA14 Resolution (see Annex 3). 5 Elected by Deputies according to the election procedure introduced in IDA13. http://www. worldbank.org/ida - 5 - ,-i Box 1: The Millennium Development Goals Goal 1. Eradicate 0 Halve, between 1990 and 2015, the proportion of people whose extreme poverty and income i s less than one dollar a day. hunger 0 Halve, between 1990 and 2015, the proportion of people who suffer from hunger. Goal 2. Achieve 0 Ensure that, by 2015, children everywhere, boys and girls alike, universal primary will be able to complete a full course of primary schooling. education Goal 3. Promote gender ~~ Eliminate gender disparity in primary and secondary education, equality and empower preferably by 2005, and to all levels of education no later than women 2015. Goal 4. Reduce child Reduce by two-thirds, between 1990 and 2015, the under-five mortality mortality rate. Goal 5. Improve Reduce by three-quarters, between 1990 and 2015, the maternal maternal health mortality ratio. Goal 6. Combat Have halted by 2015 and begun to reverse the spread of HIV/AIDS, malaria and HIV/AIDS. other diseases Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases. Goal 7. Ensure 0 Integrate the principles of sustainable development into country environmental policies and programs and reverse the losses of environmental sustainability resources. Halve by 2015 the proportion of people without sustainable access to safe drinkingwater. B y 2020 to have achieved a significant improvement in the lives of at least 100million slum dwellers. Goal 8. Develop a Develop further an open, rule-based, predictable, non- Global Partnership for discriminatory trading and financial system. Development Address the special needs of the least developed countries Address the special needs of landlocked countries and small island developing states. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long-term. Incooperation with developing countries, develop and implement strategies for decent and productive work for youth. Incooperation with pharmaceutical companies, provide accessto affordable essential drugs in developing countries. Incooperation with the private sector, make available the benefits of new technologies, especially information and communications. - 4 - SECTIONI:IDA'SSTRATEGY FORPOVERTYREDUCTION 8. The policy, operational and financial framework that underpins IDA's strategy for reducing global poverty builds on the guidance set out in successivereplenishment documents. The IDA replenishmentprocesshas continually set new and challenging precedents for the World Bank and for the development community. These precedents have contributed to the evolution in thinking about how best to assist the world's poorest countries. This section summarizes the key elements of IDA'Scurrent strategic f r a m e ~ o r k .Participants recommended that during the IDA14period this framework ~ continue to be implemented as IDA's basic development approach; that it be further strengthened through the conclusions and recommendations set forth inthis report; and that it be implemented through instructions and guidance to IDA'SManagement and staff, basedon the monitorable actions for IDA14 set out inAnnex 2, Table 3. Progress on implementingIDA14 undertakings will be discussed at a Mid-TermReview meeting. A. The Context: FightingPoverty in a Global Age 9. As a group, IDA countries have made significant progress inrecent decadesto grow and to reduce poverty. Between 1981 and 2001 the poverty rate measuredat $1 a day fell from 49.7 percent to 31.2 percent and 488 millionpeople in these countries escapedfrom severepoverty. Social indicators have also improved. For instance, literacy rates among young adults increasedfrom 60 to 76 percent overall, and from 49 to 72 percent for young women. Life expectancy has also increased from 54 to 59 years - despite the impact of AIDS, which in Africa has reducedlife spans by more than 13 years in the worst affected countries. The countries that have made the most progress are those that experienced prolongedperiods of economic growth, which are also those that made the most progress inimproving their social and economic policies. 10. Yet, despite the economic progress inrecent decades inmany parts of the world, inequality across nations has continued to widen, and poverty i s a fact of life for the vast majority of the 2.5 billion people living in low-income countries. An estimated 700 million people in these countries live in abject poverty with incomes of less than $1 a day, and about 1.7 billion live on less than $2 a day. Almost 1 billion people are chronically undernourished, and the vast majority of the 60 million people with HIV/AIDS live inlow-income countries. The average under-five mortality rate in low- income countries i s 121 deaths per 1,000 live births,compared to a rate of less than seven inhigh-income countries, andthe mortality rate for women inchildbirth insome low- income countries i s more than 100 times that of rich countries.8 These inter-related problems continue to limit the prospects of billions of people, but can be addressedby well-designed and well-implementedpublic sector programs, complemented by private sector initiatives. 11. The context of today's effort to reduce poverty is a rapidly globalizing world, where private investment, trade and technological advances play increasingly significant roles, ' Policy guidance provided in the context of the IDA replenishment negotiations i s operationalized for IDA countries inter alia through Sector Strategy Papers (SSP), the Bank's Operational Policy (OP) framework, and the Strategic Framework for the World Bank Group. WorldDevelopment Indicators 2004, World Bank. - 5 - and where international and national civil society organizations are more and more active and engaged. The benefits of globalization need to be brought to all, through market- basedpro-poor growth policies, effective public institutions, investment inpeople, and institution building. 12. Inrecent years, a consensus has emerged within the development community around the shared objectives of achieving the MDGs and the partnership between developed and developing countries that i s neededto achieve these goals. Under this consensus, developed countries must both reduce barriers to trade to promote an international economy more conducive to growth and development, andprovide adequate aid resources. Developing countries mustfocus on good governance, sound policies and robust institutions, the strength of which are the key determinants of the effectiveness of aid. 13. Developed countries must also help to ease debt burdens, where they are unsustainable and inhibit countries' development prospects. IDA sponsors the enhanced Heavily Indebted Poor Country (HIPC) Initiative and works with its partners, including the IMF,to support client countries in effective management of their external debts. A system for ensuring that IDA's support takes account of the risk of debt distress i s described in Section IIC. B. IDA's Role: Country-Led and Performance-Driven 14. Operating within this consensus, IDA provides vital financial resources andpolicy advice to 81 low-income c~untries.~ These countries have little or no access to market- basedfinancing, and IDA, as the largest single source of concessional assistance to the world's poorest countries, plays a critical role in their efforts to achieve sustained growth and poverty reduction. IDA i s a long-term development instrument. IDA finances are managed to ensure that substantial, predictable and sustainable resource flows are ' available to countries over the mediumand long term based on their performance and demonstrated capacity to effectively utilize IDA resources. 15. IDA'Sapproach to reducing poverty has evolved over time, incorporating the lessons learned and the knowledge gained from the experience of developing countries and the efforts of the international community to assist them. Its key strength lies in its country programs and inits emphasis on country-led development, as manifestedby its support for PRSPs." Experience has shown that development can only be achieved when Eligibility for IDA assistance i s primarily based on relative poverty, defined as Gross National Income (GNI) per person below an established threshold ($895 per year for fiscal year 2005), and lack of creditworthiness to borrow on market terms. Eligible countries are listed in Annex D to OP3.10 of the World Bank Operational Manual. Exceptions for (i)some small island economies, and (ii) some countries with GNI above the cut-off for two consecutive years to receive hardened IDA terms, will continue to apply during the IDA14 period. IDA resources are allocated based on the quality of countries' policies and institutions (see Annex 1). lo The Country Assistance Strategy (CAS) i s IDA's main tool for planning its assistance programs and ensuring they are tailored to each country's needs. The CAS draws from the borrower's own development vision and strategy for reducing poverty as outlined in its Poverty Reduction Strategy Paper (PRSP). See IDA11 Replenishment report, Section I; IDA12 Replenishment report, Section IV; and IDA13 Replenishment report, Section 111. The Deputies' conclusions and recommendations with respect to CASs in the IDA13 report shall continue to apply during IDA14. - 6 - poor countries themselves take control of their destinies. IDA aims to work in partnership with the governments of recipient countries to support the priorities that emerge from their own development strategies, which are basedon consultative processes that include the private sector and civil society. IDA seeks to provide an integrated package of finance, policy advice and institutional support to its clients and works in collaboration with the rest of the World Bank Group (WBG), other development institutions, the private sector, and civil society. 16. The last decade of development experience has contributed to a deeper understanding of the complexity of the development process and of the need for action on many inter-related fronts. IDA'Scomparative advantage lies in its ability to take an integrated, multi-sectoralview of the challenge of poverty reductionineach IDA country, the analytical and technical capacity it bringsto bear ingrapplingwith complex development problems, and the leadership it can provide as a convening body for the rest of the donor andinternational community. 17. Experience has also shown that development resources are most effective in reducing poverty incountries that are pursuinggood growth and poverty reduction policies. IDA has been leading the development community in the effort to align resources with country effort and performance through its Performance-BasedAllocation (PBA) system, which has also proven to be a useful tool for other partners." The PBA system i s basedupon an assessmentof countries' policies in the areas of economic management, structural issues, social inclusion and equity, public sector management and institutions, and it takes full account of the central role played by good governance inthe effective use of development assistance. IDA continues to refine the PBA system, by incorporating the lessonslearned from experience and new researchfindings, and by committing to make the performance ratings fully transparent. IDA i s also encouraging other partners to align their resourceswith performance, and i s working with Regional Multilateral Development Banks (RMDBs) toward greater harmonization of these systems. 18. While the allocation of IDA'Sfinancial resources i s and will continue to be primarily driven by policy performance, IDA also confronts the fact that many poor people live in countries with serious and persistent performance problems. Inthese Low- Income Countries Under Stress (LICUS), weak institutions, absence of government commitment or violent conflict can severely limit progress on poverty reduction. Inthe most severe LICUS country cases, particularly those inprolongedpolitical crisis, substantial financial allocations from IDA are inappropriate. Inthese countries, IDA stays engagedthrough dialogue to promote policy change and good governance, focused capacity-building to helprestore essential functions of the state and social service I' IDA's Performance-Based Allocation (PBA) system was introduced in 1977, and IDA donors have since continued to affirm that lending allocations should be based on annual assessmentsof country policy performance (see IDA10 Replenishment report, Section 11;IDAl 1 Replenishment report, Section 11; IDA12 Replenishment report, Section 111; and IDAl3 Replenishment report, Section 111, and Annex 1). The system has continued to evolve, including through the introduction of a special emphasis on good governance. Further modifications are being introduced in the current report, including with respect to the full disclosure of IDA's performance ratings. An explanation of how the PBA system wiIl be operated during the IDA14 period i s included in Annex I. - 7 - delivery to the most vulnerable groups.'* InLICUS countries that are intransition from conflict and other forms of political instability, as well as in the more stable LICUS countries that are makingprogress on reform, well-designed IDA financing can provide timely assistance in stabilizing fragile transitions; protectinghuman, social and institutional capital; and supporting reform processes. More needs to be understood about the appropriate form for external assistance to take inthese difficult situations, and IDA is working closely with partners including the Organization for Economic Cooperation and Development's Development Assistance Committee (OECD-DAC), the European Commission (EC) and the UnitedNations (UN)to learn more about aid effectiveness infragile states. C. IDA'sStrategy: The Twin Pillars 19. IDA's strategy for poverty reductionhas evolved over time to incorporate emerging lessons from both clients and partners. At times, these lessons have reaffirmedthe continuing relevance of IDA's original priorities; at other times they have helped IDA refine its approach to better address the complexities of development. IDA's strategy rests on two interdependent pillars, into which critical cross-cutting issues such as gender, environment and governance are beingmainstreamed: P Fosteringthe climate andconditions for sustainable growth, investment andjob creation that are inclusive of poor people. P Empoweringpoor people to participate indevelopment andinvestinginthem. 20. Sustainable growthrequires a dynamic private sector and an efficient and effective state with the right balance between their complementary functions. Efforts to enhance growth should aim to expand income, employment, and services for the poor. The private sector i s the engine of productivity, growth andjob creation, but the state needs to ensure sound macroeconomic policies, financing for infrastructure services, and responsible and transparent management of public finances. Governments also need to ensure sound regulatory institutions that encourage private initiative in ways that benefit society as a whole, including through policies that increase poor people's access to markets and capital. Private initiative can complement government efforts to empower poor people by providing basic infrastructure and social services -conditions essential for improving the livelihoods of the poor. Inmost IDA countries, microeconomic constraints to growth inthe form of a poor investment climate present a major hurdle to private investment and employment. Micro, Small and MediumEnterprises (MSMEs), which form a major part of private activity, are disproportionately affected by poor investment climates, the improvement of which i s a key focus for IDA (see Section IIB). 21. Governments should endeavor to set up fiscal systems that generate resources for development in non-distortionary ways and to establish legal andjudicial systems that operate fairly and effectively. Supporting countries in their efforts to establish adequate infrastructure i s a key priority for IDA. While public investment and effective regulatory frameworks play key roles inensuring that countries have adequate infrastructure, private I 2 To supportLICUS countries IDA also relies on small amounts of grant funding financedby transfers from IBRDnet incomeand surplus, and channeledthroughthe LICUS Trust Fund. - 8 - investment also needs to be tapped, including via public-private partnership^.'^ Trade i s a crucial component of economic growth and i s being supported by IDA through programs to develop national, regional and international trade and infrastructure linkages, especially inregions and sub-regions where domestic markets are small and intra- regional trade i s underdeveloped, and to help poor countries develop capacity for trade policy formulation and negotiation. Enhancements of IDA'S policies with respect to growth and trade are detailed in Section IIA. Lastly, stable and transparent governments can contribute significantly to the security of populations and the confidence of economic actors, and hence to investment and quality growth. 22. It i s important that short-term gains ineconomic growth not come at the expense of the well-being of future generations. Therefore, IDA aims to design its programs and projects with a view to ensuring long-term environmental and social sustainability, as well as to promote social inclusion, cohesion and ac~ountability.'~ Inrural areas where most poor people live, improvements inwell-being can only be achieved through increasing the productivity of both farm and non-farm economies. Reducing the vulnerability of poor people to the impacts of natural disasters and long term environmental degradation i s also a priority for IDA. 23. Empoweringthe poor and investing inthementails improving the quality and reach o f social service delivery, with a special focus on un-served and under-served communities. These investments have crucial benefits for poor people by improving their standards of living, buildinghuman capital neededto increase their productivity, and facilitating their emergence from poverty. Over the past few years, IDA has developed sector strategies to guide its work inthe key social sectors: Education, Health, Nutrition and Population; and Social Protection. For these sectors, an important challenge for IDA and its development partners i s how to ensure long-term financing within a performance-based framework. New Bank guidelines on eligibility of expenditures inWorld Bank lending will increase the flexibility of IDA to finance recurrent expenditures as a transition to long-term fiscal sustainability .15 P Educationpriorities includeworking to ensure that all children have accessto a good quality basic education, with a special focus on girls and on the poorest groups. IDA i s a strong supporter of the objectives of the EducationFor All (EFA) initiativeI6and works with countries to accelerateprogress towards these goals. Inparticular, IDA supports countries' efforts to reform their education systems, to lay the foundations for sustainable financing of the sector to improve l3 The importance of regulation in privatized infrastructure in particular is addressed in Kessides, Ioannis N.,Reforming Infrastr~icture:Privatization, Regulation, and Competition,World Bank, June 2004, available at http://econ.worldbank.org/prr/reforming-infrastructure/. l 4 IDA works to mainstream environmental aspects into its operations through its Environment Strategy; see Making Sustainable Commitments: An Environment Strategyfor the World Bank, World Bank Group, 2001, available at www.worldbank.org/environment. Eligibility of Expenditures in WorldBank Lending: A New Policy Framework. R2004-0026, 2004 16 These are: (i) expanding and improving early childhood education; (ii) ensuring that by 2015 all children complete primary education of good quality; (iii) ensuring access to appropriate learning and life skills programs; (iv) achieving a 50 percent improvement in levels of adult literacy by 2015; (v) eliminating gender disparities in primary and secondary education by 2005, and achieving gender equality in education by 2015; and (vi) focusing on learning outcomes. - 9 - access without losing focus on education quality, and on innovative delivery mechanisms such as distance 1ea1ning.l~ 9 Health, Nutritionand Population (HNP)prioritiesincludehelpingcountries protect populations from the impoverishing effects of illness, malnutrition, and highfertility. This involves working to enhancethe performance of healthcare systems by promoting equitable access to preventive and curative HNP services that are affordable, effective, well managed, of good quality, and responsive to clients including those from poor and disadvantaged groups. Health sector expansion must be accompanied by a strong emphasis on improving quality. Furthermore, health care financing mustbe made sustainable by mobilizing adequate levels of resources, establishing broad-based risk pooling mechanisms, and maintainingeffective control over public and private expenditure." Inthe HNP sector, IDA collaborates closely with a number of partner agencies, including the World Health Organization (WHO), UNAIDS, and the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM). These collaborative efforts are particularly important in the fight against communicable diseases, and especially HIV/AIDS, which i s a key priority for IDA. 9 Social Protectionpriorities include reducing the vulnerability ofthe poor and improving their ability to cope with adverse economic shocks, natural disasters, ill health and disability. Social protection also involves cost-effective and well- targeted programs that proactively help people to take on higher-return activities with less concern about the risks. IDA supports countries' efforts toward the elimination of harmful child labor, making labor markets more equitable and inclusive, implementinglegal reforms to protect poor people's right to assets (e.g., women's property rights), providing insurances and safety nets to assist the poor and vulnerable, and strengtheningcommunity-based coping mechanisms, including through social funds." 24. Cross-cutting themes: IDA recognizes that a number of critical issues cut across growth and equity concerns and are important for IDA'Swork. These include gender issues, environmental protection and governance, and IDA actively incorporates these themes in its analytical work and strategies, as well as inall its programs and projects. 9 Gender equality promotes faster growth, enablesindividuals to movemore quickly out of poverty, and enhances the well beingof men, women, and children. Gender inequalities pose a serious obstacle to growth andpoverty reduction in many IDA countries. These inequalities are apparent across sectors, in low girls' enrollment and retention rates in schools, gender dynamics of HIV/AIDS, and limited access of women to financial services and participation in economic activities. IDA works to address these issues inits assistance, by raising awarenessof gender issues across sectors and building the capacity of " See Education Sector Strategy, World Bank, 1999, available at www.worldbank.org/education/. An '* update of this strategy is underway. See Sector Strategy: Health, Nutrition, & Population, World Bank, 1997, available at www.worldbank.org/hnp/. l 9 See Social Protection Sector Strategy: From Safety Net to Springboard, World Bank, 2000, available at www.worldbank.org/sp/. - 10- governments and Bank staff to promote gender equality in their policies and programs.20 > Environment. Proper management of the environment plays a critical role in ensuring that development in IDA countries i s sustainable and poverty reduction i s lasting. Environmentalimprovements enhance the quality of life and growth, by promoting the health of populations, reducing vulnerability to natural disasters and environmental hazards, and protectingthe quality of the regional and global commons. IDA strives to achieve these goals by strengtheningits analytical and advisory services through environmental analyses, integrating environmental assessments inproject and program design (including assessmentof indirect and cumulative impacts), encouraging IDA countries to reflect environmental analysis intheirpoverty reduction strategies, and supporting capacity building. Several processeshave been initiatedinrecent years that have significant implications for the application of IDA's safeguard policies. These include the revision of the operational policy on development policy lending,21the proposedpilot program to use country systems, safeguards harmonization with other international financial institutions, and investment lending simplification and modernization. Participants called on IDA to establish procedures and mechanisms that ensure that such new approaches to safeguards provide equivalent protection to the environment and vulnerable social groups inproject design and implementation. > Governance. Efficient, transparent, and accountable public sector institutions are necessary not only for implementinggrowth-enhancing policies, but also for sustaining equitable growth and poverty reduction and protecting the rights of the poor and ensuring access to basic services. The implementation and sustainability of economic and social policies that promote poverty reductionand growth are critical to long-term development. IDA gives special weight to the importance of governance inits performance-based resource allocation system, and to operationalizing the Bank's public and private sector institutional reform and anticorruption agenda into its policies and programs. 25. The requirements of sustainable development and poverty reductionare complex and demanding, and more work needs to be done to understand the determinants of poverty-focused growth at the country-level. Tensions and trade-offs inevitably arise when pursuingdevelopment outcomes with scarce resources, and IDA seeks to work with its partners at the country level to assist them in managing these tensions, in examining the trade-offs impliedby different policy choices, and inchanneling resources most effectively to reduce poverty. 2o See IDA12 Replenishment report, Section Ion mainstreaming gender into IDA's operations, and IDA13 Replenishment report, Section I1on expanding IDA's gender dialogue with its partners and civil society. Inresponse to a request by IDA12 Deputies, the World Bank adopted the Gender Mainstreaming Strategy in September 2001, which aims to integrate gender issues fully as a central part of the Bank's work and sets the framework for the incorporation of gender issues into IDA's operations. See Integrating Gender into the World Bank's Work: A Strategyfor Action, World Bank, 2001, available at www.worldbank.org/gender. 21 Bank Operational Policy 8.60 on Development Policy Lending, introduced in August 2004. - 11- 26. IDA has increasingly involved beneficiaries in the design and implementation of its interventions, which helps ensure their effectiveness and sustainability.22 Particular attention i s now given to the empowerment of women and vulnerable or marginalized groups, while recognizing that there i s still more to be done to ensure that these voices are adequately reflected in all of IDA's activities. 27. People needa secureenvironment to go about their daily lives and improve their lot. Security services must serve the interests of the communities within which they work without consuming disproportionate shares of national resources, and fair and non-violent meansmust be available for the resolution of disputes. IDA supports countries intheir efforts to establish a safe environment for all members of society, especially the poorest. It also works to consolidate peace and stability incountries emerging from conflict. IDA's allocation system for post-conflict countries, and IDA's collaboration with other partners on post-conflict issues, both help to ensure that they receive timely and adequate financial support throughout the recovery period, while maintaining a strong link to performance.23 D.-Workingat the Country Level: Ownershipand Strategic Selectivity 28. The experience of the last two decades has shown that development can only be sustainedif policy reforms are broadly supported by a range of stakeholders at the country level. IDA has seized upon this principle in its work by supporting country- owned strategiesbuilt around good policies, institutions and governance. Underpinning this work are the principlesof the Comprehensive Development Framework (CDF), includingcountry ownership; a long-term, holistic vision and strategy; partnership amongst stakeholders; and a focus on accountability and development results.24 Further details of how IDA works with its partners at the country level are providedin Section IIE. 29. PRSPs aim to operationalize these principles in low-income countries, putting poverty at the center of governments' development plans and providing space for all actors, including the private sector and civil society, to engage on critical issues. Each IDA country i s expected to adapt the MDGs to country circumstances usingthe PRSPas an instrument and taking appropriate account of such factors as poverty profile, fiscal situation, and administrative capacity. IDA has playeda key role in supporting the initial development of the PRSPapproach and will continue to have an important role to play in solidifying the benefits of this process.25More work needs to be done to strengthen the 22 See IDA11Replenishment report, Part 1 on Country Assistance Strategies, IDA's main tool for planning its assistance programs and ensuring they involve participation and are tailored to each country's needs. Also see IDA12 Replenishment report, Section IV for working with government, civil society and other donors to tailor IDA's CASs. 23 See IDA13 Replenishment report, Annex 2 24 The CDF approach i s operationalized through PRSPs, and provides the foundation for implementing partnership at the country level. See IDA13 Replenishment report, Section I1at: http://siteresources.worldbank.or~~~Resources/FinaltextIDA 13Report.pdf. See also the guide to staff on implementing CDF principles: Supporting Development Programs Effectively: Applying the Comprehensive Development Framework Principles, November 2004. 25 InJuly 2004, the Operations Evaluation Department of the World Bank conducted an independent review of the Poverty Reduction Strategy Initiative, and put forth recommendations on improving the - 12- realism of PRSPs, by improving their analytical underpinnings andprioritization, including the attention they devote to growth and constraints on private sector activities and infrastructure development, and the poverty impact of policies and programs. This will help to improve the customization of the PRS process to country conditions and processes, ensure consistency between PRSPs and countries' budget processesand align donor support with PRSPs. The consideration of PRSPs by national legislative bodies i s encouraged to further strengthen country ownership. The strengthening of country capacity and processesfor planning, implementing, and monitoringreforms i s also an important aspect of increasing the effectiveness of reforms. IDA's ability to cooperate closely with development partners and to take an integrated view across multiple sectors and between macro and micro issues make it a key player in supporting its client countries in this process.26Furthermore, IDA recognizes the need for even stronger donor coordinationprocessesto effectively support PRSPs and also to respondto the needs of small countries that do not have full or formal PRSPs. 30. The diagnosis of development problems and prospects is critical to well-designed policies and programs, and to helpingcountries put inplace systems to ensure effective use of public resources, includingthrough accountability and transparency of government revenues and expenditures. Incollaboration with its partners, IDA seeks to maintain a base of analytical and diagnostic knowledge needed to underpinits programs and those of other donors and strengthencountries' own development efforts.27 This is achieved through a range of products such as country economic memoranda, public expenditure reviews, country procurement assessmentreports, country financial accountability assessments, integrated fiduciary assessments, public finance management performance measurement reports, and economic, poverty and sectoral analyses. When available analysis indicates weaknessesin the recipient's fiduciary systems, IDA will identify and address the steps neededto secure acceptable fiduciary arrangements. 31. Selectivity i s important to success. Within countries and within a greater partnership framework in support of PRSPs, IDA focuses its efforts in support of the PRSPthrough its CAS, identifyingthose areas of critical importance to its clients where it has a clear comparative advantage-for example, by supporting policy reform, capacity enhancement, demonstration effects and learning. IDA seeks to complement the efforts of other partners and work where its leverage i s greatest. 32. IDA's highly concessional resourcesare concentrated in the poorest countries. South and East Asia are home to the greatest number of the world's poor and receive substantial amounts of IDA financing. The poor countries of Europe and Central Asia, ~~~~ ~ Initiative. See The Poverty Reduction Strategy Initiative: An Independent Evaluation of the World Bank's Support Through 2003, World Bank, 2004, available at http://www.worldbank.org/oed/prsp/. 26 See IDA13 Replenishment report, Section I1for IDA's policy framework for implementing the PRSP process. 27 The IDA13 Replenishment report (Section 111) emphasized the need to improve the analytical underpinnings of IDA's work, and to ensure that its Economic and Sector Work (ESW) complements the analytical work of others, including the United Nations agencies, bilateral and multilateral institutions, the ILO, and researchers and government institutions in borrowing countries. I t also underlined the importance of utilizing the Common Country Assessments of the UN,and of building borrower countries' capacity to undertake analysis. Analytical work such as Poverty Assessments (PA), Poverty and Social Impact Analysis (PSIA), Country Economic Memoranda (CEM), Public Expenditure Reviews (PER), Country Financial Accountability Assessments (CFAA), and Country Procurement Assessment Reviews (CPAR) serve as key building blocks for IDA's CASs. - 13- the Middle East and NorthAfrica, Latin America and the Caribbean, and the Pacific are also IDA partners. IDA also recognizes the particularly severe development challenges faced by countries in Sub-Saharan Africa, including: endemic diseases, long-term civil and cross-border conflicts; weak governance; lack of access for many people to education and other services; inadequate or non-existent infrastructure; limited access to alternative sources of financing; climatic and environmental problems and shortage of natural resource endowments. A key IDA objective i s therefore to direct half of its assistance to Africa, provided that the performance of individual countries warrant it, and to support the efforts of these countries to use these resources effectively. IDA'Sstrategic framework for Africa addresses four key areas: P Improving governance andresolvingconflict. Thisincludes greater attention to post-conflict issues, fiscal transparency including better management o f revenues from natural resources, and support for public sector management reforms and anti-corruption measures. P Developinghumanresources, includingsupporting the fight against HIV/AIDS and other communicable diseases, social protection, and education, particularly for girls. P Promotingincreasedgrowth, notably through a soundpolicy andinstitutional environment for investment; increased infrastructure development; and greater regional integration along with the liberalization of - and creation of physical infrastructure for - intra-regional trade. P Debt reduction anddevelopment assistance -relieving unsustainable debt burdens, and increasing the quantity and quality of aid. E. GlobalandRegionalPublicGoods 33. While the focus o f IDA'S programs i s clearly at the country level, IDA recognizes that development and poverty reductionare affected by a range of issues that cross national boundaries. While the main weight of its interventions i s incountry programs, IDA seeks to contribute to the resolution of globalproblems where they are shown to be of particular relevance to poverty reduction. Five areas have been identified for attention: communicable diseases, environmental commons, economic governance and social stability, trade integration, and the knowledgerevolution. IDA collaborates closely with other partners in all these areas, for example with the Global Environment Facility (GEF) on the environment, and with UNAIDS and GFATMand other actors in the case of communicable diseases. 34. HIV/AIDS and other deadly communicable diseases destroy millions of lives every year and threaten to reverse development gains, especially in the hardest-hit areas of Africa and among vulnerable groups such as women and children. They pose an enormous challenge to the international community. IDA will continue its work to combat these diseases and mitigate their effects, both at the country level through disease-specific interventions and support for health systems strengthening, and across countries through regional projects, as well as through support for international initiatives. - 14- 35. IDA recognizes that regional and trans-boundary questions can exercise an important influence on countries' development efforts. IDA seeks to develop and apply regional solutions to regional problems, including through a pilot program that provides financial and analytical support necessary to complement critical national activities aimed at promoting deeper regional integration. IDA also aims to work more closely with other institutions that have a regional base and expertise - notably the RegionalMultilateral Development Banks - and other donors with regional programs. F. Partnerships 36. Inits work to support governments' efforts to develop andimplement broad-based strategies for growth andpoverty reduction, and at the regional and global levels, IDA cooperates closely with key institutional partners, including:28 9 The InternationalMonetaryFund. The IMFis one of IDA'Sclosest institutional partners, collaborating across the range of IDA client countries on the basis of country-owned poverty reduction strategies. The IMFtakes the lead on macroeconomic issues, the Bank on social and structural issues. There i s also strong cooperation on other low-income country issues such as debt, including through thejointly sponsored HIPC Initiative, and on the treatment of aid inflows in the macroeconomic framework. 9 The UnitedNations. IDAhasstrongrelationships with the specialized agencies, funds andprograms of the UNsystem. Collaboration has been strengthened in recent years, at both the inter-agency and the country levels, and i s particularly important in working toward and monitoring the MDGs, implementing the PRSP process, and addressing conflict emergencies and post-conflict reconstruction (with UNDP and UNHCR). Strong progress has also been made in areas such as the health sector, including through thejoint sponsorship of UNAIDS, and through work on the health-related MDGs with WHO. 9 The RegionalMultilateralDevelopmentBanks(RMDBs)are close partners of IDA, both at the country level and on cross-country issues within regions. Collaboration has grown steadily inthe areas of financial management, including procurement reform, the performance-based allocation of resources, analytical work and the environment, and i s set to further expand on governance, corruption and capacity-building. The RMDBsare also key partners in the implementation of the PRSPprocess and the HIPC Initiative. 9 The EuropeanCommission(EC)works closely with IDA on sharedanalytical work, financial management, and statistical systems and data collection. Other areas of cooperation include the HIPC Initiative, the PRSP process, and the Strategic Partnership for Africa (SPA). 28 For additional descriptions of partnerships with other multilateral organizationssee "Coherence, Coorrlination and Cooperation Among Multilateral Organizations: Progress and Challenges, Board Report,April 2004. - 15- > Bilateral donors active in the IDA process include both OECD-DAC and non- DAC donors. Both D A C and non-DAC bilateral donors are a key source of development finance, and of complementary skills and practicalexperience in project and public sector management. This i s especially valuable in addressing political and governance dimensions of development. With these donors, IDA has been making a strong pushforward through the PRSP process and through the OECD-DAC Working Party on Aid Effectiveness and Donor Practices, to ensure the greatestmeasure of alignment and harmonization of development programs at the highest standards. 9 Civil society. IDA works with agreatnumber of Civil Society Organizations (CSOs)throughout the world, including the private sector, and community-based, indigenous peoples, faith-based organizations, and foundations. IDA engages with CSOs both for the purpose of consulting on policy and other issues, and to support their efforts e.g., in service delivery such as through the IDA-financed Multi-Country HIV/AIDS Program (MAP) for Africa. G. Impact and Monitoring Results 37. The ability to monitor progress and measure results i s integral and essential to IDA'Soverall strategy. A monitoring framework for the MDGs has been designed by the staff of the World Bank and IMF,inconsultation with the UN, the RMDBs, the World Trade Organization (WTO), and OECD-DAC, and i s now being implemented Bank- wide.29 Within this framework IDA introduced, as part of the IDA13 Replenishment agreement, a preliminary system of indicators for monitoring and evaluating its own effectiveness, grounded in the MDGs and incountries' own monitoring systems. Based on this early experience, Participants welcomed the enhancedresults framework proposed for IDA14 (see Section IID), which aims to monitor development outcomes and linkthese outcomes to IDA country programs andprojects. Thisis achallenging but necessary task, as a better linkingof development outcomes to government policies and to donor interventions will ultimately benefit the poor and increase accountability for the use of donor resources. To address existing data deficiencies and enhance countries' efforts to collect and use data, an important IDA objective i s to builda stronger focus on outcomes into its country strategies, and to enhance direct support for efforts to build capacity to measureresults. H. Transparency and Accountability inIDA 38. Transparency i s fundamental to development progress inthree ways. It draws more stakeholders, supporters and ideas into the development process; it facilitates coordination and collaboration among development partners; and it improves development effectiveness by fostering public integrity and accountability for results. Just as IDA urges transparency and openness in the governance of its client countries, IDA should aim to meet the highest standards of transparency inits operations, policies 29 World Bank, Global Morzitoring Report 2004: Policies arid Actions for Achieving the Milleiiriiiitii Developmetit Goals nml Related Outcomes. June 2004. - 1G- and publications, and recognize a responsibility to make available as rich a range of information as possible for poor countries and the international development community. 39. There have been many initiatives in recent years to increase IDA's openness, includingconsulting with and involving stakeholders inits deliberations, andenhancing public information about IDA'Spolicies and activities. InIDA14, IDA aims to continue the leadership role it i s playing among development partners inincreasing transparency and will take additional steps to enhance the openness of its work. Means by which IDA works toward its objective of increased transparency and accountability include: 9 IDA ReplenishmentDiscussions. Toensureanopenandtransparent deliberative process, the IDA replenishmentdiscussions now include representatives from borrower countries; the policy papers discussed at the replenishment meetings are made available to the public; and public comments are sought on the policy recommendations contained inthis report. IDA also consults with regional stakeholders to hear their views on how to tackle the key challenges that IDA countries and their partners ~onfront.~' 9 Disclosure. SharingofinformationonIDApoliciesandoperations stimulates public debate on and broadens understanding of development issues, and also helps to create public support for development efforts. Accordingly, Participants welcome the enhancement of IDA's disclosure of information inrecent years. IDA now makes an enormous amount of operational information available to the public, ranging from project and policy documents to strategy and evaluation documents. Bank Management has also initiated an extensive program to proactively enhance information dissemination and outreach, including a program to strengthen Public Information Centers across the world through which IDA'S knowledge resources are made more widely accessible. Participants urge IDA to continue to demonstrate leadership among the multilateral development institutions on transparency in its own deliberations and the accountability of its operations and to continue to enhance public access to information on Board proceedings, including the disclosure of Boardminutes. Inparticular, Participants request that progress inthe implementation of projects and programs receiving financial support from IDA (including performance indicators and results, as appropriate) be publishedat the completion of such projects and programs, in addition to periodically during their execution. Moreover, during the period of IDA14, Participants noted that Management has committed to carry out an independent comprehensive assessmentof its control framework including internal controls over IDA operations and compliance with its charter and policies, and that such assessment would be made available to the public after disclosure has been approved by IDA'SExecutive Directors. P Countryperformanceassessments. Central to IDA'Seffectiveness is its practice of allocating its resourcesin accordance with assessments of the performance of each IDA country as measuredby key social and economic policies and with a strong focus on governance. A key means of strengthening the performance assessment system, and thus ensuringthat IDA's resources are 30 During the second meeting of the IDA14 meeting in Hanoi in July, the Participants had a day-long consultation meeting with opinion-leaders from Asian countries. - 17- even better aligned with countries' capacity to use these scarce resourceswith maximum impact on sharedpoverty-reduction goals, i s the disclosure of its country performance assessmentratings. Participants therefore welcome the recent decision by IDA's Executive Directors to fully disclose the Country Policy and Institutional Assessment (CPIA) ratings for IDA countries, starting inIDA14. They notedthat this will provide client countries and other stakeholders with transparent information about CPIA methodology, findings and ratings for all IDA countries, which, inturn, should enhance the quality and robustnessof the ratings, as well as public confidence in IDA'Sperformance as~essment.~~ 9 Consultation. Strengthening the voices of locally-affectedstakeholdersinIDA- financed project decisions remains an important challenge. Experience has demonstrated that consultation with co-financiers, partners, and groups and individuals with relevant knowledge of development issues also helps to enhance the quality of Bank-financed operations. For this reason, Participants call on IDA to strengthen documentation of stakeholder feedback from consultations required under the Bank's safeguard policies. 9 Financialflows. Participantsrecognized the needfor increasedtransparency of revenue flows from extractive industry projects to governments. They emphasized that IDA'sfinancial assistanceto a project with a significant impact on revenues should be predicated upon the government having inplace, or committing to establish, a functioning system for accounting for revenues and their use. The government should also have inplace, or commit to establish, a functioning system for the independent auditing of such revenue receipts and the public dissemination of the results. IDA should closely monitor the implementation of these systems and take appropriate (and timely) actions if they are not being effectively implemented. Although these actions are especially relevant to extractive industry projects with significant revenue impacts, they are also applicable to IDA'Sbudget support operations, as set out inIDA's operational policy OP/BP 8.60 Development Policy Lending, recently approved by IBRDand IDA's ExecutiveDirectors. 3' CPIA disclosure will be precededby comprehensive country consultations including workshops with country representativesto disseminate information on the CPIA methodology and process. Bank staff will also discuss assessment outcomes with country authorities as part of the ongoing policy dialogue between the Bank and the country. - 18- SECTION11. SPECIAL THEMESFOR IDA14 40. At the first meeting of the IDA14 Replenishment process, held in Paris, inFebruary 2004, the Participants selected five "special themes" that they would focus on during the replenishment negotiations. These special themes include the issues o f (1) growth in IDA countries; (2) private sector development; (3) debt sustainability and grant allocation; (4) results measurement; and, (5) working together at the country level. Participants discussed these special themes duringthe second, third and fourth meetings and their findings and recommendations for each of these special themes are presented below. A. Growth inIDA Countries 41. Participants stressed that sustained economic growth is a prerequisite for poverty reduction. They noted that the growth performance in IDA countries, including African countries since the mid-l990s, i s encouraging. However, there are disparities in performance among IDA countries, and the achievement of the first MDG- to eradicate extreme poverty and hunger -may be difficult in certain regions even if this recent growth trend were to continue. Participants emphasized that accelerating and sustaining the recovery will be important for achieving results on growth and poverty, as will continued strong attention to the human development agenda. Inthis regard, they noted that increasing investments and deepening the implementation of policies that support the productivity of the investments are of utmost importance. Participants were encouraged by the role of aid inpolicy reforms and in supporting the social and physical infrastructure needed for growth. 42. Participants urged greater efforts to identify the remaining constraints to growth in specific country contexts and to provide an appropriate mix of lending and non-lending assistance to remove the constraints. Stronger policies, more attention to human capital formation and increased financing for infrastructure will alleviate constraints to growth. Participants noted that weak institutions are a key constraint on growth, and urged increased attention to this issue. They underscored the need to reduce transaction costs of doing business inIDA countries, widen the reach of the market and decrease costly state interventions in the economy. Governance reforms which increase transparency, improve economic and social services, and reduce incentives for corruption can lower the costs of doing business, gain the confidence of the private sector and increase productivity. Participants also stressed that better market access, including to industrial country markets, i s a critical condition for sustaining and accelerating growth, as i s macroeconomic stability. 43. Participants stressed the importance of equity to sustain growth and for growth to have the desired impact on poverty. B y fostering shared benefits from the growth process, equity-based measures, including emphasis on investment in people, enhance the quality and impact of economic growth, and help sustain public support for growth- promoting policies. Participants welcomed the work underway in the Bank on various aspects of growth, equity and poverty. The analytical work being undertaken on "pro- poor" growth will deepen understanding of the linkages between growth, income distribution and poverty. The World Development Report for 2006 will explore whether development strategies that incorporate equity are more likely to be successful than - 19- others. It will delve into the factors that underlie inequality. paying special attention to issues emerging from globalization and the distributional consequences of policy reforms and economic fluctuations. Key Bank Instruments and Priorities For Growth Promotion 44. Participants underscored the role of the country-led PRS process as an important instrument for defining the approach of each IDA country to poverty reduction and the coordination of donor assistance. They recommended that countries give adequate attention to growth and private sector development (PSD) issues in the PRS, as strong efforts in these areas are vital to makingprogress on the MDGagenda. Participants also noted the importance of usingCASs to establish priorities for IDA's assistance to countries in the implementation of their PRSs, and to coordinate with development partners. 45. Participants notedthat successful growth strategiesmustaddress both macroeconomic and microeconomic dimensions to help create an economic environment that enables resources to be allocated and utilized efficiently. Participants recognized recent efforts by IDA in this regard, including: (i) the launch, inFY03, of the results- basedCAS pilot program in seven countries to help identify measurable results from IDA's assistance programs and develop indicators to measure progress toward such results inrecipientcounties;32and (ii) increased attention to private sector development, including through stronger collaboration between the International Finance Corporation (IFC) and IDA in the preparation of CASs. They encouraged morejoint IFC/IDA CASs, to enable more coherent use of Bank-wide instrumentsto foster private sector activities. 46. Participants urgedfurther efforts to raise the scope and quality of growth diagnostics and policies inCASs, improve alignment to country-owned development objectives, and sharpen the focus on areas of IDA's comparative advantage and opportunities to collaborate with other development partners. 47. Strengthening IDA's analytical work: Participants stressed the importance of country-focused economic and sector work (ESW) for providing an informedbasis for growth and poverty-reducing policies, and supported continued efforts to ensure that IDA remain at the forefront of analytical work on country policy, institutions and development issues. They welcomed the significant improvements in the number and quality of core diagnostic reports for IDA countries since the launching of the ESW reform program in FY99. They notedthe shifts inthe composition and forms of analytical work- including country advisory papers; core diagnostic reports; workshops; training and capacity- building; and "just-in time" policy notes - to respond more flexibly to changes in borrower demands. 48. Participants welcomed IDA's efforts to increase client participation in ESW preparation to help build capacity, ownership and consensus for reform efforts, and also ____ v These pilots are to be reviewed in FY05, and lessons from the pilot review are expected to inform the design and implementation of the results-based CAS in more IDA countries during IDA14 (see also Annex 2, Table 2). - 20- the greater frequency of collaboration between IDA and development agencies in undertaking analytical work, which helps avoid duplication of efforts, and reduces the burdenon already fragile capacity inIDA countries. 49. Inreviewingthe experience with core diagnostic reports, Participants recommended that more emphasis be put on reports that integrate macroeconomic, sector and structural reform issuesfor growth, and that assess investment needs and potential sources of finance required for growth. They notedthe importance of analytical work focused on public resource management issues, which i s essential to provide a sound framework for growth. 50. Participants agreedthat for countries that do not have large lending programs -for example, small and vulnerable economies, and LICUS -IDA'SESW should be carefully tailored to address issues of particularly highpriority in the country context. To maximize the impact of its expanded menu of analytical and diagnostic work, IDA should complement its own efforts with increased donor collaboration to cover ESW gaps. They stressed the needfor IDA to continue to innovate in how it supports the particular needs of this group of countries. They recognized that the quality of Bank policy engagement and tailored analytical work may prove to be more important in such circumstances than the quantity of lendingprovided. 51. Participants welcomed the results tracking framework for monitoring and reporting progress at various stages of the ESW product cycle that IDA has developed. Inthe next cycle of the ESW Progress Report, duringIDA14, Participants look forward to an assessment of coverage of existing ESW gaps, and the overall progress made in improving ESW quality; increasing collaboration with other partners; implementingthe ESW results framework; and disclosing ESW products. 52. FinancialAssistance: Participants reviewed the positive impact on growth policies of IDA credit and grant assistanceinsupport of policy reform, human development and infrastructure. They noted that policy-based lending, which has accounted for over 25 percent of IDA commitments since the mid-I990s, builds on a broad understanding inthe development community that sound policies, good governance and institutional development are necessary for efficient use of resources to achieve poverty-reducing growth. Participants noted that Development Policy Operations (DPOs) should remain below 30 percent of total IDA commitments duringthe IDA14period.33 Management will monitor annually the overall share of DPOs inIDA countries. If it i s projected that it could exceed 30 percent for any year, Management will report that projection to the Executive Directors for review and guidance. Deputies stressedthe need for clarity and consensus to frame decisions on any move beyond this 30 percent share of DPOs in IDA14. They agreedon the importance of clear principles and a framework for assessing the readiness of recipient countries to make productive use of DPOs. Deputies asked Management to prepare a proposal for such a framework, based on a systematic review of experience, for consideration and endorsement by Deputies at the Mid-TermReview. Participants also noted the trend toward greater use of Poverty Reduction Support Operations (PRSOs), which are anticipated to replace policy-based lending gradually in 33 IDA resources committed under DPOs to countries reengaging with IDA after a prolonged period of inactivity and usedby recipients for the purpose of repaying bridge financing used to clear arrears would not be included in this percentage. - 21 - PRSP countries. These operations - which tend to focus on public sector governance, financial and private sector development, human development and social protection, and also increasingly on infrastructure -require significant capacity in recipient countries. They urged continued strong focus on ensuring that adequate fiduciary safeguards are put inplace to underpin this type of lending. They also supporteda continued strong role for investment lendingto expand the productive capacity of the economy in all IDA countries through, for example, enhancing capacity of line ministries, especially where conditions are not yet inplace to support lending through PRSOs and other DPOs. 53. Participants stressed that continued progress in the social sectors i s a critical element of the growth agenda, and wiIl require addressing a combination o f factors, including weak borrower policies, inadequate capacity and gaps indonor funding. As such, Participants noted the importance of maintaining IDA'Sstrong performance as a lender to the social sectors, which has resulted inbetter education, health and social protection services in IDA countries. While IDA has been the largest long-term investor inthe prevention andmitigationofHIV/AIDS, the progress that IDA hasenabled in the social sectors remains at risk of being reversed by the HIV/AIDS pandemic. 54. Participants stressed that infrastructure i s a critical underpinningfor growth and expanded economic opportunity for the poor. At the same time, many IDA countries face a substantial infrastructure deficit, a severe shortage o f resources to repair and expand critical services and utilities, and a lack of effective regulatory institutions which are critical to the success of infrastructure reform efforts. They agreed that IDA can play a unique role in terms of financing, technical expertise and linkage of infrastructure provision policy and regulatory reforms to promoting both economic growth and better access by the poor to clean water, power and communications. They welcomed the World Bank Group's Infrastructure Action Planintroduced in July 2003, which i s helping to revitalize financing for infrastructure, by focusing on more and better analytical work, strengthening the infrastructure project pipeline, and employing a broader range of instruments for infrastructure development, including leveraging private capital through the use of IDA guarantees and on-lending to sub-sovereign entities. They underlined the importance of a balance which ensures strong investment innew infrastructure while also properly maintainingexisting infrastructure. Participants recognized that the demand for infrastructure from IDA countries i s increasing and that a substantial increase of IDA commitments in infrastructure i s anticipated during IDA14. 55. Governance and publicinstitutions: Participantsunderscored the central importance of good governance in creating the conditions for growth, and endorsed the efforts of IDA and its development partners to combat corruption and enforce public accountability in borrowing countries to enable both domestic and external resources to be used more productively. They welcomed the mainstreaming o f governance reforms in operational activities to combat corruption, enhance appropriate public resource use and enlist the confidence of the private sector. They noted three important areas in which this agenda i s being furthered: 9 Diagnostic work, such as PERs, CFAAs,CPARsand integrative fiduciary assessments, focus directly on public resource management, particularly, budgeting, expenditure reporting; auditing and enforcing financial accountability rules; and ensuring procurement processes that are timely and transparent. - 22 - P Investment climate issues, e.g., property rights, the legalandjudicial system, scope of responsibilities of legislatures and their capacity to exercise them, regulation of investments and investment incentives, and the overall cost of doing business, including the costs of inadequate infrastructure, are being addressedto improve the business environment and encourage the private sector (see also Section IIB below). 9 As discussedinSectionIIE,donor collaboration is acentralpart of governance reforms. For example, the Public Expenditure Financial Accountability group i s a collaborative initiative involving the EC, the Bank, RMDBs,IMFand bilateral donors. These organizations and donors have worked closely with the Bank to assist countries affected by conflict and other governance problems. 56. Participants also took account of the recommendations of the Expert Panel convened to review the methodology that underpins IDA's PBA system. They stressed the importance of ensuring a continued strong focus on governance - which i s strongly linkedto growth -by maintainingthe present strength of the governance factor, while at the same time reducing its volatility by using a three year moving average for the procurement flag component. They agreed that experience with the governance factor should be reviewed at the IDA14Mid-Term Review, and welcomed on-going efforts to harmonize the allocation approaches of the RMDBs. 57. Trade, growth, and poverty reduction: Participants noted the importance of trade for IDA countries, and stressedthat the competitiveness and market access issues are essential elements of successful strategies for growth, job creation and poverty reduction. They noted that an open, liberal and rules-based trading environment i s a fundamental factor enabling countries to service their debts ina sustainable manner and is itself a powerful instrumentin helpingto avoid debt distress. They welcomed the creation of a new World Bank Trade Department in July 2002, which has streamlined IDA's work in this area, andhelped buildpartnerships with agenciesengaged intrade-related activities. They also welcomed the Bank's analytical and policy work on the relationship between the trading environment and development, as well as efforts to strengthen trade policy reform and provide advisory services to help countries expand and diversify exports; to helpborrowers improve trade negotiation capacity, especially inview of the Doha Round trade issues and the WTO accessionprocess; to provide direct support for operational work; and to encourage regional integration. The overall work on trade has a broad multi-sector perspective, which includes barriers to trade issues (e.g., customs, trade logistics, standards), agriculture market access and specific commodity market issues, services liberalization, and poverty. 58. Participants noted IDA's operational trade work, which stresses technical assistance and trade facilitation, agriculture trade and other market access issues, and helps borrowing countries integrate better into the world trading system. A series of transport and trade facilitation audits have been initiated to identify critical drivers of high trade transaction costs, especially in landlocked countries, and provide a basis for technical assistanceand investment projects. Participants further stressed the usefulness of the Integrated Framework (IF) program - a multi-donor effort led by the Bank- to identify constraints to trade and the potential to expand and diversify the exports of IDA countries. Inrecognition of the impact trade policies can have on poverty, Participants encouragedIDA to evaluate transitional costs, including impact on the poor, and proposals for appropriate mitigation policies for countries embracing the trade liberalization agenda, especially with respect to market access issues, including markets for agricultural products, and the poverty impact of open trade policies. 59. Participants also supported the work program on trade issues for the IDA14 period, which will include issues related to adjustment costs and the distributional effects of reforms; studies investigating why and how some countries have successfully used trade reforms as part of a growth strategy; analyzing the implications of global reform for individual developing countries; and investment and pilot projects aimed inter alia at integratingsmall agricultural producers into global supply chains. Duringthe IDA14 period, IDA will prepare aprogress report on the implementation of the work program, including progress inassisting countries integrate trade policy into their PRSs. B. Private Sector Development 60. Participants reviewedthe implementationof IDA'Sprivate sector development (PSD) strategy,34and affirmed that a vibrant and competitive private sector i s key to growth and poverty reduction. Private markets are the engine of productivity growth, which provides a central avenue for higher incomes, economic growth and employment generation. Private initiative can also contribute to fulfilling the government responsibility of ensuring access to basic services by providing improved infrastructure, health and education services that empower the poor. These are essential conditions for sustainable improvements in livelihoods. 61, Participants endorsedthe strategy's two broadobjectives: (i) extending the reach of markets through investment climate reform35with a special focus on measures that help Micro, Small andMedium Enterprises (MSMEs) thrive; and (ii) improving access to basic infrastructure and social services through private participation. Participants noted that the PSD strategy was innovative inits attention to the investment climate, inits focus on the diagnostic agenda, and in its support for broader coordination and new instruments to address the challenges identified. The investment climate takes on additional significance inIDA countries, where most private activity takes place in the informal sector. Since most entrepreneurial activity by the poor takes place inthe informal sector, efforts to improve the investment climate, complemented by access to capital -for example through microfinance initiatives - are critical to empowering the poor. Work on investment climate reforms i s also crucial as a precondition to the success of other types of PSD interventions inIDA countries by the other members of the World Bank Group (WBG). 34 Articulated in the document Private Sector Development Strategy: Directionsfor the World Bunk Group, April 2002. This was followed by a Implementation Progress Report, June 2003. To put the PSD strategy into action, regional PSD Strategy Implementation Plans were prepared in FY04. The PSD strategy i s complemented by other operational strategies, notably those related to the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and Small and Medium Enterprises (SMEs). 35 Investment climate refers to factors influencing firms' opportunities and incentives. Kaufmann and Kraay (2002), showed that country investment climate factors are strongly associatedwith per capita income growth. - 24 - 62. Participants encouraged IDA to strengthen its analytic/diagnostic non- lendingtechnical assistance,knowledge management, and training activities. IDA uses survey-based diagnostics, including Investment Climate Assessments (ICAs) and the Doing Business Project (DB), to identify the microeconomic constraints to the growth of firms and to employment. DuringIDA14, five to ten investment climate surveys are expected to be launched in IDA countries each year. Inaddition, five to ten investment climate country diagnostics will also be conducted in IDA countries, with the objective of ultimately ensuring that all IDA countries are covered. 63. Participants stressedthat while initial efforts are promising, investment climate reforms should be consistently reflected including inCASs, PRSPs, operations and country performance assessments. The emphasis of investment climate work should shift toward the design of effective solutions and to implementation of those solutions. As a baseline of investment climate information becomes available, they called for IDA to adapt accumulated investment climate knowledge to local environments, and shift its diagnostic efforts toward monitoring key indicators over time in partnership with other stakeholders. 64. Participants urgedthat IDA'Ssupport to private sector activity, including that to the MSMEs, continue to be built on market-basedapproaches. They notedthat as MSMEs suffer disproportionately from impediments inthe investment climate, across- the-board improvements have a disproportionate benefit to the MSMEsector. The MSMEsector, which serves as acriticallinkbetween the growth andpoverty agenda, also has significantly less access to financial and business development services than larger enterprises. IDA'Sstrategy of providing direct support to MSMEswhile also strengthening the business environment and building capacity in financial systems and business development services was appropriate. They urgedIDA to continue leveraging its capacity by working through intermediary institutions that have substantially lower transaction costs in supplying finance and services to individual enterprises. Participants welcomed ongoing efforts to scale-up this work. 65. To document successful reformefforts and capture lessons for adoptionlreplication by other countries, a review of IFC-IDA collaboration on MSMEs inAfrica will be conducted andreported at the IDA14 Mid-Term Review. Participants urged that successfulpilot initiatives inMSMEsupport be scaled-up and their features widely disseminated to operational staff. They further noted that the scope and reach of the WBG's MSMEwork, including that of the Project Development Facilities (PDFs), could be further extended inIDA countries. 66. Participants noted that the World Bank has been piloting Output-Based Aid (OBA)37approaches inIDA countries inorder to increase accountability and allow 36 The recent high profile analytic work on PSD i s the World Development Report (2005), which focuses on "A Better Investment Climate for Everyone." 37 OBA has been proposed as a tool for supporting the delivery of basic services -infrastructure, health and education. OBA schemes introduce commercial discipline and efficiency of private providers in the provision of basic services while also addressingaffordability concerns. Under this approach, disbursementof public funding (including D A credits and grants) would be tied to the delivery of specified services or outputs by the providers. The providers bear significant performance risks related to the delivery of such services. This contrasts with the traditional approach of directing public funding to the financing of assets where tax payers pay even i f there is non-performance. OBA provides strong incentives to achieveresults. - 25 - stronger involvement of the private sector. The WBG will undertake a review of OBA to draw lessons learned from these pilot experiences which will be made available at IDA14 Mid-Term Review. 67. Finally, Participants underscored that the crosscutting nature of investment climate issues requires enhancedcollaboration across all PSD staff in all parts of the Bank, IFC and MIGA. Participants noted that the CAS and PRSP are the starting point for such collaboration, but that systematic dialogue at the regional andcountry level (such as the country dialogues already initiated by the PSD anchor) can further enhance the complementarity of work across networks and units. Strengthenedex-post evaluations of IFC and MIGA activities in IDA countries will be important to further increase the overall development effectiveness of their operations. 68. Participants urged the WBG to strengthen the ongoing collaborative efforts to promote private sector development inIDA countries through: (i) joint work on the investment climate; (ii) joint approaches to new public-privatepartnerships in infrastructure; and (iii) work on MSME support in Africa. Going forward, they joint urged the WBG to explore the possibility of scaling up OBA-based projects as well as the IDA-IFC MSMEprograms. They also encouraged the WBG to include, where possible, private sector implementing agencies inregional operations. Inaddition, Participants agreed that IDA should explore the issues involved in lending directly to the private sector without sovereign counter-guarantee. Since this would pose a major policy change, and financial and risk management challenges to IDA, they requested further work on such a move and a report at the time of the IDA14 Mid-Term Review. 69. Finally, participants took note of the various ongoing efforts by the WBG to reach out to external partners, which have resulted in the mobilization of financial and technical assistance for the promotion of private sector development. Inparticular, they noted efforts by the WBG to work with external partners to strengthen the investment climate in IDA countries as well as to improvethe provision of infrastructure services. They encouraged the WBG to continue with the collaboration to reinforce its own efforts to foster private activity inclient countries. C. Debt Sustainabilityand Grants inIDA14 70. Participants agreed that debt sustainability will be the basis for the allocation of grants to IDA-only countries inIDA14. Unlike inIDA13, grants in IDA14 will no longer be allocated according to multiple, special-purpose eligibility criteria. Instead, under the new grant allocation system, the share of grants in total IDA financing will emerge from a country-by-country analysis of the risk of debt distress. 71. Participants broadly endorsedthe Joint Bank-Fund debt sustainability framework (DSF)as the analytical underpinningfor the linkbetween debt sustainability and grant eligibilit~.~' The DSFlinks the risk of debt distress to the quality of policies and institutions in low-income countries. Participants further noted that the two broad pillars 38 See IMFand IBRD (2004a), Debt Sustainability in Low-Income Cotintries - Proposal for an Operational Framework and Policy Implications, Washington, D.C., February 2004. Henceforth referredto as the "Framework Paper". - 26 - of the DSF are directly relevant to the allocation of IDA grants by: (i) providing a set of indicative thresholds of external debt-burden indicators which take into account countries' policies and institutions as well as their vulnerability to exogenous shocks; and (ii)analyzing the actual and projectedbehavior of debt-burden indicators and other key macroeconomic variables as indicatede.g. inDebt Sustainability Analyses (DSAs), both under baseline and plausible shock scenarios. 72. Regarding the first pillar of the debt sustainability framework, Participants supported the adoption of lower debt and debt-service thresholds than those originally proposed in the Framework Paper.39 They noted that the main implications of lower thresholds would be twofold: (i) a wider country grant coverage; and (ii)higher overall a grant share. Inorder to preserve IDA's financial strengthover time, Participants stressed that the overall grant share should remain within a sustainablelevel. With the new assumptions on the thresholds, the overall grant share i s estimated to be around 30 percent. They askedIDA Management to report periodically on the evolution of the overall grant share and implications for IDA's finances, and to report on the implementation of the grant allocation framework by the Mid-Term Review. 73. Participants urged staff to work closely with the IMFto make rapid progress on the designand implementation of the secondpillar, and askedfor a proposal to be presented at the Mid-TermReview. They noted that until the secondpillar can be operationalized, eligibility will hinge on ratings from the thresholds-basedranking system. Such ranking will be basedon selecteddebt burden indicator^,^' against which countries' debt levels will be compared. The appropriate credit and grant mix for each country will thenbe determined according to its debt-distress risk category, namely, high, moderate, or low. Duringthe transition to a system that fully takes into account the key aspectsof the secondpillar, insights from available DSAs will be usedto inform the decision on how to classify countries. 74. Participants noted that grant eligibility inIDA14 will follow two additional principles, in order to reduce risks related to the "free rider" issue: (i) grants will be limited to IDA-only countries.41 If a country i s reclassified from blend to IDA-only status during the period between the end of the IDA14 Replenishment discussions and the Mid-TermReview, it will continue to be ineligiblefor grants over the course of IDA14; and (ii) a mechanism will be devised whereby a country could cease to be eligible for grants if its government or other public sector entities contract or guarantee new loans from alternative sources of financing which threaten to defeat the debt sustainability objective that IDA grants are intended to help achieve. Participants stressed that close coordination among lenders would be needed to ensure that grant-making by IDA does indeedhelpreduce countries' riskof debt distress. They requested that a specific 39 IMFand World Bank (2004b).Choice of Indicative Debt-Burden Thresholds-Alternative Options, OM2004-0091,Washington, D.C., November2004. 40 Participantsconsideredthat two "stock" indicators-the Net Present Value (NPV) of debt-to-exports and NPV of debt-to-GDPratios- and a "flow" indicator- the debt service-to-exportsratio - would be the most appropriate ones as they capture most of the relevantinformation to determinedebt distress riskswhile minimizing potentialdata and moral hazardproblems. 41 Gap countries (with per capita incomes above IDA's operationalcut-off for more than two consecutive years) are not eligible for IDA grants. See Debt Sustainability and Financing Terms in IDA14: Further Considerationson Issues and Options, IDA14policy paper, November2004. - 27 - proposal addressing the "free rider" issue be presentedto IDA's Executive Directors before the end of FY05. 75, Participants noted two exceptions to the debt distress-basedgrant eligibility criterion. First, two special transitional cases, Kosovo and Timor-Leste, will be eligible for grants. For Kosovo, eligibility i s based on its status as part of Serbia and Montenegro under United Nations Administration and will continue duringIDA14 until its status changes and it i s able to borrow. Timor-Leste will be eligible for grants to avoid a sudden shift of status vis-a-vis other IDA13 grant-recipient countries under the post- conflict criterion, and will be gradually phased out of grant eligibility duringthe IDA14 period.42 Second, as inIDA12 and IDA13, limited grant financing would be available to support recovery efforts duringthe pre-arrears clearance phase of countries that are eligible for exceptional post-conflict IDA allocations (see Annex 1, paragraph 9). 76. Participants agreedthat IDA will establish a provision for the grant financing of the portion of the cost of regional projects that i s attributable to IDA-only countries eligible for 100percent grants under the debt-distress criterion. 77. Participants supported the adoption of a Modified Volume Approach (MVA), the application of a 20 percent volume discount on grants, and the exclusion of revenues- basedindicators from the eligibility mechanism while it i s still transitioning to a DSA- based system. Participants stressedthat the MVA reconciles two policy objectives: (i) it provides poor countries with an adequate volume of resource transfers inlight of MDGs; and (ii)maintains a strong relationship between policy performance and IDA's resource it transfers. 78. Participants pointedout that the 20 percent volume discount will be subdivided in two components, each addressing a different objective: (i) incentives-related portion an (11percent), to helpmaintainthe strength of IDA's incentive system; and (ii)charges- a related (9percent) portion, to finance foregone charge income on IDA14 grants. They noted that post-conflict countries eligible for exceptional IDA allocations (see Annex 1, paragraph 9) would only be subject to a charges-related volume discount. 79. The grant component of regional projects will be subject only to the 9 percent charge-related volume discount, to avoid increased costs to IDA interms of foregone charge income. 80. Participants concurred that the resourcesfrom the incentives-related volume discount on grants will be reallocated to IDA-only countries43through the use of a PBA- basedrule, that is, according to their respective share in the PBA norm (net of the share inthe PBA norm of blends, hardened-termcountries andpost-conflict countries eligible for `exceptional IDA allocations). The credits and grants mix applied to the reallocated resources will be the same as in the first round of allocation of IDA resources, that is, in accordance with countries' risk of debt distress. For those countries receiving additional resourcesin the form of grants, no further volume discount will be applied. 42 Timor Leste will receive 100 percent of its allocation on grant terms in FY06, 60 percent in FY07 and 30 percent in FY08. The grant portion of each year's allocation will be subject to a 9 percent discount to recover charges. 43 Except for IDA-only, grant-recipient post-conflict countries, since they are a priori excluded from the pool of countries that could be targeted for the incentive-related volume discount on grants. - 28 - 81, Participants noted the high synergy between addressing shocks and the proposed framework. They pointed out that critical questions remain unanswered, however, including: (i) the magnitude of shocks vis-a-vis available resources; and (ii) the difficulties in definingshocks for operational purposes. Participants requested staff to continue to explore the feasibility of strengthening IDA countries' responseto shocks, giving due consideration to the role to be playedby other entities, including the IMF, and to report back on the results of such work by Mid-Term Review. 82. Participants observed that the resourcesfrom the charges-relateddiscount on grants will be available for lendingto IBRD/IDAblend countries, by creating a "hard terms" lendingwindow. To ensure sufficient borrower interest insuch a window, the interest rate to be charged will be more concessional than the prevailing IBRDlending rate. The Participants agreedto a spread of 200 basis points below the IBRDlendingrate infixed- rate terms. To reduce country credit risk for IDA, lending through the hard terms window will be restricted to creditworthy blend countries with per capita incomes below the operational cutoff for IDA but with an active IBRDlendingprogram. D. ResultsMeasurementinIDA14 83. The Monterrey Consensus underscored the sharedresponsibility for achieving development results, including the MDGs, and the dual importance of increased and more effective, development assistance. The World Bank has played a major role in the international partnership to manage toward development results, and has reflectedthat commitment in the IDA13 Replenishment arrangement and inthe development of an enhancedsystem to monitor results for IDA14. Building on the lessons learned from the IDA13results measurement system, Participants agreedon an enhancedand broader- based systemfor IDA14, consisting of a two-tiered approach to monitor: (i) progress on aggregate country outcomes (see Annex 2, Table l), IDA's and (ii) contribution to country outcomes (see Annex 2, Table 2). Participants noted that there remained inherent difficulties in attributing specific development outcomes to particular actions by IDA. They also took note of the monitorable actions for IDA14 (see Annex 2, Table 3) and requestedthat Management report on progress in implementing IDA's results-related mandatesat the Mid-TermReview. 84. Tier 1: MonitoringCountryOutcomes: Over the course of the IDA14period, Participants requestedthat IDA Management monitor aggregate progress on 14key country outcome indicators, and report on them every three years inline with IDA replenishments. These indicators reflect prevailing IDA country PRSpriorities, are consistent with the MDGs, and capture both the economic growth and the human development priorities of ongoing IDA programs. Criteria for selecting the indicators includedtheir relevance to desired outcomes, sensitivity to policy action, measurability and the cost of data collection (to avoid excessive data collection burdens for low-income countries). While attribution of outcomes to a particular actor or agency i s impossible at this level, monitoring changes inthese indicators is importantbecausethe donor community, including IDA, has a collective responsibility to ensure that external support helps developing countries move in the right direction on core development outcomes over the longrun. - 29 - 85. In addition, Participants requestedIDA-fundedprojects to be designed to support country monitoring of core outcomes. Thus, all new IDA operations for FY06and beyond, infour sectors (health, education, water supply, and rural roadtransport)44will report on, and strengthencountry capacity (where this i s not already being done) to ensure adequate monitoring of key sector outcomes included in the IDA14results measurement system: (i) under-five child mortality rate; (ii) primary education completion rate; (iii) proportion of the population with improved access to a safe water source; and (iv) proportion of the ruralpopulationwith access to an all-season rural road. This will help ensure that countries have the capacity to generate regular data for these fundamental development outcomes, to use IDA operations to strengthen this capacity, and to help staff and the recipient countries to remain focused on key outcomes influencedby IDA-financed operations. 86. Tier 2: Monitoring IDA's Contribution to Country Outcomes: Inaddition to tracking development outcomes across IDA's borrowers, the IDA14results measurement system will assess key aspects of IDA'Scontribution to country outcomes. An important vehicle for this purpose is the results-based CAS, which links IDA programmingmore clearly to country priorities. Participants requestedthat duringIDA14, Management monitor and target45the cumulative introduction of results-based CASs inIDA countries to ensure progress toward results reporting at this level. Inthe longer run, following full implementation of the new results-based CASs, an additional indicator will be basedon reporting on results-based CAS outcomes. 87. With respect to the IDA portfolio, Participants requested that Management monitor and target the quality-at-entry of IDA operations, which i s a leading indicator for positive outcomes, and track and target the share of IDA operations that successfully achieve their development outcomes. Quality-at-entry i s evaluated annually by the Bank's Quality Assurance Group (QAG) through the examination of a random sample of projects. The most recent data show 85 percent satisfactory quality-at-entry for the IDA portfolio. Duringthe IDA 14period, Participants requestedthat Management work to improve the quality-at-entry of IDA projects beyond this level as indicated inTable 2 of Annex 2. Specifically, the target i s to increase the average satisfactory quality-at-entry for the portfolio during the IDA period (FY05-FY07)as compared to the given baseline. 88. The Bank's Operations and Evaluation Department (OED) validates project outcome ratings by reviewing Implementation Completion Reports (ICRs) for all IDA projects exiting the portfolio. These data, which are based on independent ex-post evaluation and are available annually for all exiting projects, are currently the most reliable measure of project outcomes across the IDA portfolio. Participants requested that Management work to improve on the FY03 aggregate average satisfactory outcome rating of 75 percent in IDA countries over the IDA14 period (FY06-FY08). They also requestedthat Management should work to decrease the number of multi-year problem projects and keep project quality under careful scrutiny. 89. At the individual project level, Participants emphasized the importance of strengthening outcome-oriented objectives and monitoring. Participants requested 44 These are the sectors where IDA, in aggregate, i s most active. 45 Targets for the introduction of results-based CASs in IDA countries are: 16 by end FYOS, 30 by end FY06 and 45 by end FY07. - 3 0 - Management to monitor the extent to which results frameworks are incorporated into the design of IDA-financedprojects by explicitly assessing the results framework underpinningproject design in quality-at-entry assessments. They also requestedthat Management work toward implementinga results framework for IDA projects and programs that includes indicators connected to a timeline with baseline data andperiodic assessments of project and program performance against definedexpectations. Implementationfor policy-based loans will be consistent with a good-practices paper being completed by Management by July, 2005, as well as lessons developed by the MDBEvaluationCooperation Group. Furthermore, they requestedthat over the course of the IDA14 period, Management would work to ensure that 100percent of IDA investment projects initiated after July 1, 2004, and DPOs for which Concept Review takes place on or after September 1,2004, include such frameworks. They urgedthat all CASs initiated after January 2005 would be results-based CASs. 90. OED assesses the evidentiary baseprovided inproject ICRs to evaluate the achievement of outcomes. Participants requested that the share of ICRs with satisfactory data on project outcomes i s improvedabove the level achieved over the last two years (76 percent) as indicated inTable 2 of Annex 2. Thus, the proposed target i s to increase the share of ICRs with satisfactory data on project outcomes for the portfolio duringthe IDA period (FY05-FY07) as compared to the given baseline. These project-level indicators are a useful gauge of the extent to which measurable results are being specified and monitored throughout the project cycle. These data will be complemented with summary data on disbursement lags by sector and themes and all reports on these indicators will distinguish between IDA grants and loans.46 91. Participants recognized that efforts to strengthen the results orientation of IDA projects and programs will need to include efforts to strengthen a `culture of results' at both country and among IDA management and staff. Management notes that its current staff performance review system includes upfront specification of Results Agreements, and has recently signaled that the quality and performance of lendingand non-lending portfolios i s a key dimension of the review of management performance. Participants encouraged Management to continue its work to integrate information on progress toward results, calibrated to what i s achievable in specific country and sectoral contexts, into performance review processes. At the institutional level, ongoing reviews of organization effectiveness and internal budgetprocess reforms are also designed to signal a sharper focus on development effectiveness. 92. Participants recognized that, while project outputs, such as health clinics constructed, will not on their own have an impact, they are necessaryfor achieving development outcomes. Participants therefore, requested that IDA monitor progress on selectedaggregate project outputs in four sectors where IDA i s active across a range of countries: health, education, transport and water (the same four sectors for which IDA projects will assist countries to strengthenoutcome indicators). They noted that output indicators will be recorded for all projects, but definitions of outputs can not be standardized across all projects within a sector without underminingcountry ownership and fit to particular institutionalenvironments and sectoral policies. Outputs will be drawn from ICRs. These indicators will have the advantage of capturing changes that 46 For operations the comprise both credit and grant elements IDA will track these indicators only to the extent that this is practical and provides meaningful information. - 31 - can be attributed to IDA's interventions. The performance indicators are outlined in Table 2 of Annex 2. 93. Improving Statistical Capacity in IDA Countries: Participants recognized that country capacity to measureprogress toward core development outcomes i s critical to country-led implementation of poverty reduction strategies, and i s the foundation for global monitoring of progress toward the MDGs and the IDA results measurement system. They therefore urgedIDA to play a leading role in coordinating efforts to strengthen the capacity to compile and use statistics inIDA countries.47 They requested that IDA work with international partners to compile information on the statistical systems of IDA countries, including indicators of their statistical capacity. Participants encouraged IDA to prepare profiles of countries' statistical capacity and make this informationpublic on the Bank's external website. They also asked IDA to work with development partners to monitor statistical capacity buildingactivities undertaken in client countries and to prepare annually and make public a note describing and tracking the progress of efforts to improve statistical capacity. 94. Participants requestedthat IDA play a leadership role inthe global partnership for statistical capacity-building. They requestedthat IDA continue its support for the PARIS21 consortium and intensify support within its CASs and projects for national statistical capacity-building. Furthermore, they asked that IDA work in partnership with its development partners to implement the global action plan to strengthen statistical systems, includinghousehold surveys. They urgedIDA to assist countries in preparing national strategiesfor the development of statistics. The World Bank's Trust Fundfor Statistical Capacity Buildingand PARIS21should support countries adopting a fast-track approach to preparing strategic plans. Participants also supported IDA's initiative to start a pilot program to align and harmonize internationally sponsoredsurveys and to make improvements in statistical practices consistent with national statistical development plans. In selecting countries for this work, they urged that priority be given to IDA countries preparing CASs. This work should be coordinated through the new International Household Survey Network, formed as part of the Marrakech Action Plan for Statistics. 95. The IDA programand its results measurement systemcan help poor countries improve data collection contributing to better decision makingthat fosters progress toward established goals. Strengthening the results focus of CASs and IDA operations will increase support to countries for buildingcapacity to manage for results and will help ensure that core development outcomes are regularly monitored. Participants requested that IDA work together with other development partners to continue to harmonize results reportingrequirements around national monitoring and evaluation systems for implementation of poverty reduction strategies. E. Working Together at the Country Level: The Role of IDA 96. Participants noted that, since 1995, levels of Official Development Assistance (ODA) had fluctuated between $48 billion and $59 billion per annum, with roughly 70 47 Methods for Monitoring the Achievements Made Towards IDA Results Indicators, Committee on Development Effectiveness, October 2004 (CODE2004-0077) - 32 - percent coming from bilateral donors and 30 percent from multilateral donors. Further substantial increasesin these flows are expected in the near future, as donor countries continue to deliver on their Monterrey commitments. They also noted that, while IDA'S share of total ODA has fallen from 9.2 percent in 1995 to 5.6 percent in 2002, its share of multilateral disbursements had remained steady at around 35 percent. 97. Participants recognized that the changesinfinancial flows still left IDA ina key position in the development architecture. IDA has a good ratio of disbursements to commitment^^^ and its country aid allocations are the most efficient in terms of targeting poverty reduction. IDA'Spresencein virtually all low-income countries and inmost socio-economic sectors gives it a comparative advantageinproviding an integrative service in terms of donor coordination. They affirmed that IDA should continue to capitalize on its comparative advantages, including: k As the development agency that undertakesthemostcountry-specific analytical work and researchon economic development, and as a source of global knowledge inthis area, it helps to strengthenthe knowledge base for all development partners. P By working closely with the IMF,it ensurescoherencebetween the long-term development objectives and the shorter-term requirements of macroeconomic fiscal and monetary management. P By participatingfully in-preferably country-led -country levelcoordination processes basedon CDF principles. 9 With its increasedpresenceat thecountry levelresultingfrom the major Bank- wide decentralization program, IDA can help integrate the efforts of donors and improve the design and implementation of aid programs. 98. Participants also recognized that the Bank hadmade a major effort to strengthen relations with other multilateral donors, including the UNand its agencies. Much of the focus of this effort has been the alignment and harmonization activities that are now under way, engaging the Bank, RMDBs, and the OECD-DAC. They welcomed the note on "Indicators and Harmonization" that IDA produced for the Athens Meeting, in which the Bank confirmed its commitment to monitor progress on harmonization. This would be done through a set of indicators drawing on the agreementreached by the donor community as a whole at the D A C HighLevel Forum. They noted that, once agreement has been reached on the indicators framework, IDA would construct a baseline against which to monitor progress of the relevant indicators for its operations, and would monitor and periodically report on progress against the baseline to Participants. Inaddition, Participants urgedIDA also to emphasize donor coordination in CASs, including through the adoption of harmonization indicators. Lastly, they welcomed the inclusion of harmonization indicators as part of the Bank's Key Performance Indicators (KPIs) program.49 48 IDA DisbursementRatios FY95-04, Technical Note, August 2004. 49 The Key Performance Indicators are part of the Bank budget reform program, under which operational units within the Bank will bejudged against a set of quantifiable measures designed to track performance in achieving stated goals over time. Indicators are structured in an hierarchcal - 33 - 99. The PRS process should be country-led with broad participation from civil society and the private sector, and should align government and donor resources with the objectives of empowering the poor and promoting growth. Participants affirmed that the PRS process hadbecome one of the key instruments for the delivery of coordinated aid. Yet the PRS process still needs to be strengthenedbefore it can be considered an effective tool for the majority of low-income countries. Inorder to draw lessons for strengthening the PRS process and aid effectiveness, Participants reviewedexperiences in Vietnam, venue of the second IDA14 replenishment meeting, and noted a number of features of IDA's work there which have made an important contribution to the development effort, including: P Support for the Government's own national planningdocuments andprocessesas the basis for the Vietnamese PRS; P Support for a strengthening of the growth analysis underpinning the PRS, and efforts to make the PRS as comprehensive as possible; P Progresson harmonization ofprocedures, andacommitment to strengthen and improve Government systems, including through the provision of capacity buildingassistance, with the intentionthat these systems will ultimately be used by donors; P Effortsto maximize ownership of, andpartnership in, the PRSC among the donor community; P Moves toward producingan increasing share of analytical work inpartnership with other donors and Government: P Effortsto address andenhance sectoral coherencewhile recognizing the value of a variety of different aid instrumentsin supporting sectoral frameworks; and P A highly decentralized office, with both the Country Director andmany Task Managers basedin country.50 100. Drawing on such lessonsfrom IDA's operations, key changesto be made include supporting countries taking charge of the implementation and evaluation of the process, strengthening national public financial management systems and promoting a stronger link of the PRS to national decision-making processesincludingbudgetary processes, supporting analytical work on the linksbetween poverty and growth, and strengtheninga partnership framework that will enable donors to align further to the PRS process. In support of this, they urged that IDA should: P Undertake more upstream analytical work, particularly inthe areaof public finance, and, when requested by the government, follow up the work with framework and designed to include, at the regional level, measures of harmonization and alignment with other donors and national authorities. 50 Increasing Aid Effectiveness and the Role of IDA: Learning Lessonsfrom the Vietnam Experience, Joint JapadUK Paper for IDA14, September 10,2004. - 34 - support to the country, to strengthen and improve the quality of its PRSP. > Carry out more of its work jointly with recipient governments and other donors, and share the results of this work as widely as possible. > When the reforms supported by DPOs providedby IDA are expectedto have significant distributional impacts, assess these impacts through poverty and social impact analysis (PSIA) or other analytical studies. These assessmentswill be basedon analysis undertaken by the recipient, other development agencies, civil society organizations, or the IDA'Sown work. Where IDA undertakes these assessments it will invite the recipient and other donors active in the country to participate as fully engagedpartners. > Report on progress made by IDA in implementingthe recommendations of the Bank's Review of World Bank Conditionality. > Helpstrengthen country processesfor planning, implementing, andmonitoring by further mainstreaming efforts at the country level to improve the coverage and quality of statistics as well as policymakers' capacity to interpret the statistics. For example, IDA should work inpartnership with other donors to strengthen statistical systems in IDA countries. 101. Participants notedthat, inparallelwith the PRS process, important initiatives have been launchedon results measurement, and on alignment and harmonization of donor assistance. The Bank i s playing an active part inall these activities and has been leading in some areas, notably on results measurement, public financial management and statistical capacity-building. Inthis context, they affirmed that the substantial work on donor coordination of recent years should be continued. Participants noted that many of these initiatives will only bear fruit over the medium- to long-term and underlined the importance of `staying the course' to reach tangible results. They further urged that IDA assist the process by monitoring progress on donors' coordination and harmonization. Buildingon the CDF evaluation IDA should work with OECD-DAC and other partners to monitor progress being made in working together at the country level. 102. Participants noted the particular challenges posed by LICUS countries, which are home to over 400 million people and threaten regional and global stability when conflict and epidemic disease spill across borders. These countries are highly heterogeneousand it would not be appropriate to come up with a boilerplate approach across the whole group. Participants recognized that IDA has made headway inexpanding its development approachesto address the needs of LICUS countries through the LICUS Initiative, emphasizing knowledge, institution-building and harmonization, and a differential approach between countries in prolonged political crisis; fragile political or post-conflict transition; political stability but poor policy environments; and periods of deteriorating governance. They affirmed that IDA should continue to work with other donors (both D A C and non-DAC) which i s particularly important where the capacity to manage fragmented donors' programs i s even more limited than usual. Participants also observed that it would be usefulfor the Bank and the UNto discuss how to further strengthencollaboration based on their respective competences inpost-conflict countries, especially in the early phases of recovery, with the aim of reaching conclusions that will facilitate speedy and effective cooperation at the country level. They welcomed the fact - 35 - that the Bank would evaluate carefully the report of the UNHigh Level Panel on Threats, Challenges and Change and its reform proposals pertainingto conflict prevention and reconstruction, and that it looks forward to deepeningcollaboration on global policy and country-level operational partnerships to address the critical peace, security and development nexus. 103. Participants noted that difficulties in aid delivery also exist for small and vulnerable states. Aid levels to small states have declined since 1991, and to small states that were also inthe LICUS group they declined even more. The Participants recognized, however, that the Bank, for its part, hadincreased its budget allocations for analytical and advisory services (AAA) and other support to small states substantially since FYOO. Nevertheless levels of analytical work in such states remain below the levels of other countries, and the LICUS small states have particular difficulty inmobilizing assistance. Participants supported Bank efforts to further increase its support in such states by improving incentives for Bank staff to work on them and by mobilizing additional resourcesthrough trust funds. They urged the Bank to work closely with the RMDBs, which are also engagedinenhancing support to small states. To strengthen support from IDA to small states countries, Participants recommended increasing the base amount that IDA makes available to all IDA countries from SDR 3 million to SDR 3.3 million. Participants encouraged the Bank to look at other measures to increase support for small states, such as increasing incentives for Bank staff to work on such states, and usingtrust funds to support the cost of Bank staff engaged in small states advisory work. 104. Participants recognized the importance of regional programs in addressing issues such as trade and transport, HIV/AIDS and sharing of water and energy resources. They noted that the pilot program on regional projects introducedinIDA13 has experienced strong demand. They affirmed that IDA should continue its role as a financier, and provider of analytical support for regional programs, with due regard for country ownership (see Annex 1,paragraph 9). Furthermore, IDA should work to support initiatives aimedat facilitating deeper regional economic integration, such as the NEPAD initiative. They also recommended that IDA continue to consult with the RMDBsto enhance cooperation, to avoid overlap and to ensure that each institution's programs are basedon its comparative advantage. IDA's role i s especially important where such finance and support i s necessary to complement critical national activities aimed at creating the conditions for deeper regional integration. 105. Participants recognized that the Bank plays a key fiduciary and administrative role inmany global programs. The Bank also finances programs that support the same core objectives and which are often delivered in conjunction with other donors. On HIV/AIDS, inparticular, IDA remains unique inits provision of implementation support at the country level, its ability to work across sectors, its capacity to channel money to the public and private sectors and civil society, particularly at the community level, its existinginvolvement incomplementary activities such as health sector reform and PRSP/PRSOs, and its willingness to fund projects that others will not, particularly in post-conflict situations and regionally. They urgedIDA to build on these strengths to increasethe effectiveness of other sources of funding which lacked IDA's implementation and technical infrastructure. They affirmed that IDA should continue to support programs at the national and regional levels, when such support results in increased harmonization and coordination of donor efforts, and helps to build implementation capacity. - 36 - SECTION 111: HIPC INITIATIVE 106. Participants reiterated their strong support for the HIPC Initiative which i s providing debt relief to the world's poorest and most indebtedcountries. They emphasized the importance of closely linkingHIPC debt relief with countries' poverty reductionefforts through the PRSPprocess. They noted the progress that hadbeen made inthe implementationof the enhancedHIPC Initiative since its adoption at the beginning of IDA12 and that IDA debt relief i s now provided to all eligible HIPCs. 107. Participants reviewedthe impact of HIPC debt relief on IDA's finances. Participants reaffirmedthe basic HIPC principle that debt relief should not reduce IDA's capacity to support poverty reduction and development and should be additional to other IDA as~istance.~~They noted that current plus expectedresources available to finance IDA's debt relief costs will be fully utilizedby the endof calendar year 2005, i.e., early inthe IDA14period. IDA will therefore need additional financing of about SDR1.2 billion duringIDA14 to be able to deliver its agreed debt relief program. 108. Deputies discussedthe arrangementsfor donors to provide HIPC-related contributions to IDA, and agreed that such arrangements should be flexible and simple to administer. Each donor's share will be determined basedon the agreedburden-sharing and shown as a separatecolumn inTable 1of the IDA14 Resolution. They discussedtwo possible mechanisms for donors to provide their HIPC-relatedcontributions: (a) contributing directly to IDA; or (b) channeling contributions through the HIPC Debt Initiative Trust Fund. The contributions will be recorded separately from regular IDA contributions in order to ensure that HIPC debt relief i s additional to other IDA assistance. 109. Donor funds provided directly to IDA will be treated in the same manner as regular contributions, becomingpart of IDA's general resources. Donors can choose to submit one Instrument of Commitment (IOC) that would include the amount of the HIPC-related contribution, or separateIOCs for regular contributions and HIPC-related contributions. Donors can pay their HIPCcontributions incash or promissory notes. Since these additional contributions will reimburseIDA for its foregone reflows duringfiscal years 2006-2008, they will be drawn down over this three-year period. Donors will receive voting rights for contributions upon payment to IDA14. 110. Another possibility i s for donors to make HIPC contributions directly to the HIPC Trust Fund. Donors would sign contribution agreements with IDA, as administrator of the HIPC Trust Fund, specifying the contribution amount and payment modalities- in cash or promissory notes, to be drawn down over a three-year period. Donors will deposit their contributions inthe World Bank component of the HIPC Trust Fund, and contributions will be transferred to IDA to reimburse IDA for its foregone credit reflows. Since these funds become part of IDA's general resources at the time of transfer from the HIPC Trust Fundto IDA's cash accounts, donors will receive additional voting rights in IDA following such transfers. Management will report periodically to donors on the status of their contributions to the HIPC Trust Fund. 5 ' This principle was originally articulated in the Development Committee CommuniquC, September 27, 1999, paragraph 7. - 37 - SECTION IV: MANAGING IDA'S FINANCIAL RESOURCES 111. Given the time it takes to reap the benefits of investments in growth and poverty reduction, the three years of the IDA14 Replenishment Period (2005-2008) represent a criticaljuncture in the effort low-income countries are making to reach the MDGs. Deputies recommend therefore that IDA14 donor contributions of SDR 14.1billionbe provided so as to achieve a total replenishment of SDR 24.2 billion duringthe IDA14 period consisting of funding for IDA14 commitment authority of SDR 23.7 billion and financing of foregone charge income on IDA13 grants of SDR 0.4billion. Donor funding will comprise: regular assistancecommitments of SDR 12.5 billion; foregone charge income on IDA13 grants of SDR 0.4 billion; and IDA's debt relief costs under the HIPC Initiative during the IDA14 periodof SDR 1.2 billion. A total of SDR 12.3 billion was pledged at the final replenishment meeting, and Deputies urged further efforts by donors to fill the remaining gap. Replenishment funding would also comprise transfers from the IBRDnet income (ifavailable) inthe amount of SDR 1.1 billion, and commitments against IDA'Sinternalresources52inthe amount of SDR 8.7 billion. A. ProspectiveNew Membersand Donors 112. Participants welcomed Slovenia to the IDA14 discussions as a new donor. Participants noted that, intheir view, there are still a number of countries that have the economic capability to contribute to IDA but have not yet done so. These include Bahrain, Brunei Darussalam, Chile, Cyprus, Qatar and the UnitedArab Emirates. Participants agreedthat they and Management should continue to encourage these countries to become IDA donors. 113. Participants noted that Ukraine became a member of IDA in May 2004.53 They also noted that the Bahamas and Venezuela, which are still in the process of becomingIDA members, also intend to become IDA donors. B. CommitmentAuthority,Grant Financingand RiskManagement 114. IDA's commitment authority for new financing i s derived from donor contributions, internal resources. and IBRD net income transfers. 115. Participants noted that repayments of outstanding credits constitute the most important component of internal resources. Participants appreciated the analysis presented during the replenishment discussions demonstrating that IDA would have sufficient liquidity available to fund future credit disbursements, and also that future replenishmentswould be supported by an adequate level of internal resources. Participants endorsedIDA'Sexistingpractice of usinginternalresources to complement donor resources to increase IDA's commitment authority.54 52 '' Intemalresources includeprincipalrepayments,investmentincome, and other non-donor resources. Membershipin IDA totals 165 countries. i J DuringIDA14, an importantshare of internalresourceswould be drawn from IDA's liquidity. At the meetinginHanoi, Management illustrated the expectedprofile of reducing IDA's liquid assets over time. - 3 8 - 116. Deputiesagreed to provide resourcesto replace IDA's foregone charge income due to IDA13 grants, by way of additional donor contributions during I D ~ i 1 4Regarding . ~ ~ the provision of grants in IDA14, Deputiesreaffirmedtheir commitment to maintain the strength of IDA's finances. 117. Deputies agreedthat Thirteenth Replenishment funds carried over into the Fourteenth will be administered under the terms of the Thirteenth Replenishment with respect to financial management matters such as payment, encashment, and allocation of voting rights. For ongoing operational matters such as commitment authority, Fourteenth Replenishment terms, conditions and procedures will apply. C. Burden-Sharingand IBRD Transfers 118. Participants acknowledged the dual challenge of securing an adequate replenishment size while achieving an acceptable burden-sharing framework. Deputies noted that adjusted Gross National Product (GNP) remains a useful point of reference for IDA shares, but that it cannot be followedrigidly as the basis for determining replenishment shares. Inview of substantial exchange rate movements since the date of the agreement on the IDA13 replenishment, Deputies agreedthat flexibility was required on the part of each donor for a successful outcome of the replenishment. 119. Deputies proposed IDA14 donor contributions of SDR 14.1 billion, including contributions to the HIPC Trust Fundto replace IDA's foregone credit reflows due to debt relief provided duringthe IDA14period. Commitments (subscriptions and contributions) shown in Table 1 of Annex 3 reflect the agreement among donors. 120. Donor contributions become available in three equal tranches. It i s the practice of some donors to deposit qualified instruments of commitment to IDA, and as a result, payments are subject to annual legislative approvals. Inview of this, since the Seventh Replenishment, donors, underthepro rata provision, have restricted the use of part of their contributions in the event of any shortfallfrom donors whose contributions exceed 20 percent of the total. Deputies agreedto retainthepro rata provision, recognizing that it i s not expected to apply in IDA14 since no donor i s expected to account for 20 percent of total donor contributions. 121. Participants noted that the ability of IDA to assist low-income countries over the next three years depends heavily on the agreedIDA14 fundingpackage and that a critical component of this fundingpackage was IBRD's continued ability to provide net income transfers to IDA. Such transfers are approved annually by the Board of Governors of the IBRD. Participants emphasized the priority they attach to continued and substantial transfers from IBRDnet income to IDA. They urgedthe IBRD to increase IBRD'snet income transfers to IDA in SDR terms, relative to IDA13 levels, consistent with IBRD's financial priorities. 'j Modalities of IDA13 Grant Financing - Technical Note, IDNSecM2004-0379, May 26, 2004. - 3 9 - D. Effectivenessand Advance ContributionScheme 122. Deputies recommendedthat donor financing for IDA14be made subject to an effectiveness condition similar to that usedunder previous IDA replenishments. The purpose of such a condition i s to ensure that most donor financing, including contributions by major donors, i s inplace on time. The Deputies recommended that donor contributions to IDA14 become effective when Instruments or Qualified Instrumentsof Commitment (IOCs) accounting for 60percent of the total donor contributions have been received by IDA. 123. Participants discussedthe expected limited availability of commitment authority for making grants at the start of the IDA14period. Principal reflows derived from credits extended inreplenishments prior to IDA11cannot be used for the financing of grants as the associatedreplenishment resolutions didnot authorize the making of grants. IDA would, therefore, needto rely on donor contributions to back new grant commitments during IDA14. In view of the likely larger volume of grants inIDA14than in IDA13, and because many countries would receive their IDA assistanceexclusively in the form of grants duringIDA14, the timely availability of commitment authority for grants i s of particular concern. Since the first tranche of donor resourcesinIDA14 would generally not become available until the secondhalf of FY06, IDA's ability to extend grants during the first six to nine months of FY06 would depend on donors providing their IOCs in an early, advanced manner. 124. Deputies noted the importance of providing their IOCs as early as possible. Some donors' budgetary and legislative timetables permit them to make their contributions at an early stage inthe fiscal year. Inpast IDA replenishments, some donors agreed that a share of their contributions could be usedbefore the replenishment became effective under the advance contribution scheme (ACS). Inview of the limited availability of commitment authority for grants duringthe first six to nine months of FY06, Deputies agreedto eliminate the threshold for the ACS. One-third of the amount specified in a contributing member's IOC, will therefore be releasedfor commitment authority purposes immediately upon receipt of the IOC by IDA and prior to the effectiveness of the replenishment unless otherwise stated. 125. As notedin the paragraph above, the first tranche will be released either upon receipt of IOCs, or upon effectiveness of the replenishment as specified by the donor. The second and thirdtranches are normally releasedbasedonpayments received from donors during the secondhalf of the relevant fiscal year. This timing would also result in the same issue discussedabove -namely that commitment authority for grants will be limited during the first half of the fiscal year. Prior to IDA13, IDA'Spractice was to release commitment authority from donor contributions basedon IOCs, not on payments. To avoid disruption in IDA's ability to make grant commitments, IDA will revert to the practice of usingIOCs as the basis for commitment authority and release the second and third tranches of donor contributions on July 1, 2006, and July 1, 2007, respectively. 126. Deputies noted two other options to address this commitment authority issue: (i) introducing conditional grants; and (ii) converting credits to grants. Grants during the first six to nine months of IDA14 could be made conditional upon availability of sufficient commitment authority from donor contributions. Alternatively, IDA14 grant operations could be approved as credits inthe first six to nine months of IDA14 with an - 40 - automatic conversion to grant terms as and when sufficient donor resourcesbecome available. Upon conversion, any IDA service and commitment charges paid under the credit would be refunded to the borrower. To the extent required, Management would adopt a combination of conditional grant approvals and conversion of credits into grants, as described above. E. ContributionProcedures 127. Deputies recommended that the contribution andpayment arrangements for donors continue as inprevious replenishments. They recommended a target effectiveness date for the replenishment of December 15, 2005. Donors will provide their contributions in the form of cash or notes in three equal annual installments. The first installment will be due 31 days after the replenishment becomes effective, except for advance contributions which will be paid as specified by IDA after the advance contribution schemebecomes effective. The second installment will be paid no later than January 15, 2007, and the thirdinstallment no later than January 31, 2008. IDA may agree to payment postponement under the provisions of the IDA14 Resolution. 128. Deputies recommended that subscription and payment arrangements for non-donors continue as inprevious replenishments. Subscription payments of non-contributing members will be fully paid in one installment and in national currency, either incash or notes. 129. Encashment. Donor contributions will be encashedon an approximately pro rata basis among donors (Attachment I1of the IDA14 Resolution). Donors may, with the agreement of Management, adjust their encashments to reflect their legal and budgetary requirements. Deputies agreed to indicate any special preferences inthis regard to Management when donors deposit their IOC. Deputies recognized that the timing of encashmentsaffects IDA's resource base. They agreed that inexceptional cases, should unavoidable delays occur, IDA's encashmentrequests to the affected donor are expected to be adjusted to take into account any past payment delays by that donor and any related lost income to IDA. IDA may also agree with any member on a revisedencashment schedule that yields at least an equivalent value to IDA. 130. Valuationof contributions. Deputies agreed to denominate their contributions in their respective national currencies, in SDRs, or, with the approval of IDA,inany convertible currency of another member country. They also agreed to determine the currency of payment for each donor contribution as of the date of conclusion of the IDA14replenishment discussions. For the purpose of establishing the equivalence of value among different currencies and the SDR, donors agreed to use the average daily exchange rate for the period April 1,2004, through September 30, 2004. To help maintain the value of contributions from donors with high inflation rates, contributions from donors with domestic annual inflation of 10percent or higher in 2001-2003 will be denominated in SDRs. 131. Reportingof contributions. Participants requested Management to report regularly to the Executive Directors on the status of each donor's commitment and actual contributions to IDA and to include this information in the Annual Report of the World Bank and other publications as appropriate. - 41 - F. Additional Contributions. 132. Additional Contributions. Donors may at any time make additional contributions to the amounts shown inTable 1of Annex 3. Such contributions could reduce the financing gap and result ina corresponding increase inIDA'Savailable commitment authority. 133. ContingentContributions. Deputiesagreed to specific actions to be taken on donor harmonization and conditionality inIDA operations as set out inthe policy matrix (Annex 2, Table 3) and inthe Schedule to the form of IOC attached to the draft resolution. Deputies askedManagement to report on progress on the required actions at two points duringthe IDA14 period: by September 2005 and at the IDA14 Mid-Term Review. Donors can link additional contributions to these agreed actions and make such contributions contingent upon a determination by IDA'SExecutiveDirectors that the measures specified have been taken. G. VotingRights 134. Participants notedthat IDA'Svoting rights system was designed to protect the voting power of the developing countries inIDA. At present, however, there i s a large discrepancy between votes allocated and actual voting rights, becausenot all Part I1 members have subscribed for the full amount allocated to them. Inthis context, work i s underway to facilitate the taking up of subscriptions by Part 11members. Management sent letters to concernedmembers requesting that they take up their outstanding allocations. The letters were accompanied by all the necessary forms (IOCs andpayment instructions) to effect the subscription process. This issue was further discussedwith country delegations at the time of the Annual Meetings in October 2004. 135. Participants agreedthat the existing IDA voting rights system continue for the IDA14 period. - 42 - SECTIONV: RECOMMENDATION 136. Deputies proposedthat the Executive Directors recommend to the Board of Governors the adoption of the draft IDA14 Resolution attachedin Annex 3. - 43 - ANNEXES -44- ANNEX 1 Summary of the Performance-Based Allocation System for IDA14 I.Introduction 1. IDA's Performance-Based Allocation system (PBA) will continue to be the basis for the distribution of IDA resources duringthe IDA14 period. This annex provides an updated overview of the PBA system and highlightsthe enhancements that were agreed duringthe IDA14 deliberation^.^^ The annex should be considered inconjunction with the new system for allocating grants during IDA14 (outlinedin Section IIC). This system will be further elaborated in a grant implementation paper to be submittedto IDA's Executive Directors inJune 2005. 11. PBA Overview 2. The performance of IDA countries i s assessedannually usingthe Country Policy and Institutional Assessment (CPIA) tool.57 The CPIA assesses each IDA country's present policy and institutionalframework for fostering poverty reduction, sustainable growth and ability to effectively use development assistance. The system has evolved over time and now comprises 16 criteria grouped infour equally weighted clusters: (i) economic management; (ii) structural policies; (iii) for social inclusion and policies equity; (iv) and public sector management and institutions (Box l)? To ensure that ratings are consistent with performance within and across regions, (i) detailed questions and definitions are provided to country teams for each of the six rating levels for each of the 16 criteria; and (ii) an institution-wide process of rating and vetting a dozen `benchmark' countries is carried out to anchor the ratings in all IDA regions. This i s followed by a process of institutional review of all country ratings before they are finalized. 3. IDA countries are beinginformed of the assessmentprocesswhich is increasingly integrated in the country dialogue. Since IDA12 the CPIA and Country Performance Ratings (CPR) for IDA countries have been disclosed on a quintilebasis. Starting in IDA14, i.e., with the 2005 ratings, the numerical rating for each the CPIA and CPR criteria will be fully disclosed. 56 For a more detailed description, see the IDA13 paper Linking IDA Support to Country Performance - Recent Experience und Issues, IDA, January 30, 2001. For information on the subsequent evolution and results of the system, see Linking IDA Support to Country Performance - ThirdAnti~iulReport on IDA's Coiiiztty Assessment and Allocation Process,April 30, 2002 (available at '' www.worldbank.org/ida/PBA2002.pdf). The system described here reflects the enhancements made in response to the recommendations made by the External Panel of Experts which reviewed in the spring of 2004 the CPIA methodology and process. Such external review i s envisaged to be undertaken on a tri-annual basis. 58 For the CPIA 2004 Questionnaire, see wwLv.worldbank.or_p/ida/.pdf. There usedto be 20 criteria; the reduction to 16 was based on a recommendation by the External Panel of Experts. - 45 - Box 2: Revised CPIA Criteria A. Economic Management 1. Macroeconomic Management 2. Fiscal Policy 3. Debt Policy B. StructuralPolicies 4. Trade 5. Financial Sector 6. Business Regulatory Environment C. Policies for Social Inclusion/Equity 7. Gender Equality 8. Equity of Public Resource Use 9. BuildingHuman Resources 10. Social Protection and Labor 11. Policies and Institutions for Environmental Sustainability D. Public Sector Management and Institutions 12. Property Rights and Rule-based Governance 13. Quality of Budgetary and Financial Management 14. Efficiency of Revenue Mobilization 15. Quality of Public Administration 16. Transparency, Accountability, and Corruptioninthe Public Sector 4. The CPIA underpins IDA'SCPR but i s not its only determinant. Two additional process steps are included. First, to capture the important dimension of quality of development project and program management, the Bank's Annual Report on Portfolio Performance (ARPP) i s used to determine a score for each country's implementation performance. The ARPP scores are based on the percentage of IDA funded projects in the country that are considered at risk. These percentages are translated into 1-6scores with the help of a conversion table.59 A weighted average rating i s calculated of the CPIA (80 percent weight) and the ARPP measure (20percent weight). Inthe second step, this composite rating i s multiplied by the "govemance factor" to produce the country's IDA CPR (Chart 1). 59 The Conversion Table has been amended (see Attachment 1) to assure: (i) consistency with the new CPIA which now has definitions for each of the rating levels from 1-6; and (ii) alignment of the average ARPP ratings with that of the CPIA ratings by reducing the ARPP conversion scores. - 46 - Chart 1- IDA Country Performance Rating Country Policy and Portfolio Institutional . Performance Assessment Rating CPIA (80%) ARPP (20%) IDA Country Performance Rating I 5. The governance factor i s derived from the five criteria inthe CPIA's governance - or public sector management and institutions -cluster D, plus the three-year moving average of the procurement flag that i s an element of the ARPP portfolio rating.60 The average score of these six governance criteria i s divided by 3.5, the mid-point of the 1-6 range, and an exponential of 1.5 i s applied to this ratio:6' Governance Factor = (average governance rating / 3.5)la5 The country's overall rating i s then multiplied by this factor, resulting inan increase (or governance rating i s strong -above 3.5 (or weak -below 3.5). decrease) of the overall IDA CPR, depending on the degree to which the country's 6. IDA's resourcesare allocated on the basis of the IDA CPR (ensuringthat good performers get a higher share of IDA's available resources), population, and GNIper capita:62 IDA Country Allocation = f( CPR 2.0,P O ~ ~ ' ~ , G N I /)C ~ ~ . - ~ ' ~ ~ ~ The formula shows that the country's policy and institutional performance i s the dominant determinant (twice as higha score results in four times the allocation), while population also affects it significantly (the relationship i s linear: a higher population results ina proportionally increased allocation). Finally, there i s a modest bias in favor of the IDA eligible countries with a lower GNIper capita.63 6o The moving average was introduced in 2004 to reduce unwarranted volatility o f this governance indicator. 61 Participantsdecided to maintain the 1.5 exponential of the govemance factor. At the time of the mid- termreview they will reflect on how this has affected the allocations at the country level, especially in the case of the strongest and weakest performing countries. 62 For a more detailed specification o f the IDA allocation formula, see Attachment 2. 63 Poverty is heavily weighted in the allocation, since normally IDA eligibility requires that the country's per capita GNIi s below the annually reviewed I D A operational cut off-level, which as of July 1, 2004, stands at $895. - 47 - 7. The allocation n o m establishesthe financial resourcesavailable for each IDA country for a given year, and gives an indication of resource availability inthe following two years. The terms ineffect for the allocation will be determined inaccordance with the grant allocation systemfor IDA14. Country allocations vary over time with changes ina country's performance, as well as with changes to other countries' performance, changes in eligibility for IDA resources and for IDA grants, andIDA resource availability. The allocation norm i s the basis for the financing scenarios set out inCASs or Transitional Support Strategies (TSSS).~~ Chart 2 IDA CountryAllocations - Performance CAS 8. Inaddition to their performance-based allocations, all countries are allotteda basic allocation of SDR3.3 million. Interms of per capita allocations, this benefits small states inparticular. 9. There are some considerations that merit exceptions to the allocation norms. > First,"blend" countries with access, or potential access, to IBRDreceive less than their allocation norms due to their broader financing options. P Second, countries emerging from severe conflict can, undercertain condition^,^^ be provided with additional resources in support of their recovery and inrecognition of a period of exceptional need. The special post- conflict allocations may be provided for up to four years, plus three years of phase down to the performance-based norm.66 If such countries have large In Spring 2005, revised CAS guidelines will be issued which will replace the terms "Transitional Support Strategy," "Country Re-engagement Note," "Interim CAS" and "CAS Update" with the new term "Interim Strategy Note" (ISN). See Aid Delivery in Conflict-Affected IDA Countries: The Role of the Bank, November 2004. Annex on IDA's Approach for Allocating Resourcesto Post-Conflict Countries (pp16-20). The duration of exceptional eligibility was lengthened following the review of the post-conflict allocation system at the IDA13 Mid-Term Review. At the same time, the post-conflict allocation norms were somewhat lowered so as to leave the overall extra post-conflict allocations unchanged. See IDA'SPerformance-Based Allocation Systerii: Current and Emerging Issues, IDAfR2003-0203, October 24, 2003. - 48 - and protracted arrears to multilateral creditors, they may also be eligible for grant support in the pre-arrears clearance period.67 P Third, incases where the existingallocation would not allow for a sufficient response, additional allocations may be provided to IDA countries in the aftermath of major natural disasters. P Fourth, additional allocations may beprovidedon aone time basis to countries that are in the processof re-engaging with IDA after a prolonged period of inactivity on the basis of a strong transition plan with concerted donor support.68 This exception will only be used after all other options have been exhausted, and its use is expected to be very limited inthe IDA14 period. The level of resources made available will be less than what i s typically providedunder the post-conflict allocation system, and the duration of exceptional allocations will not exceed two years, with one further year's support possible subject to strong performance. The rationale for usingthis exception will be clearly presented inthe TSS. > Fifth,there is a special provisionfor selectedregional integrationprojects. As a continuation of this pilot program which was started in IDA13, IDA14 envisages up to SDR300 million per annum of such projects, whereby SDRlOO millioni s to be contributed from the participatingcountries' IDA allocations, and the balance from the special provision. Experience under the pilot program will be reviewed at the time of the IDA14 Mid-Term Review. For more details, see the IDA13 MidTerm Review discussion paper.69 10. As the PRSPbecomes a full-fledgedstrategic document of the country, the CAS becomes inessence IDA's business plan in support of the country's PRS, selectively supporting country poverty reduction goals on which IDA agrees and i s best placed to make a contribution. The selection of the IDA-supported program from that of the PRSP will increasingly be influencedby IDA'Sperformance assessment in two ways. First, the implementation of the PRSP's policies will be expected to be reflected inthe IDA CPRs, and thereby inthe base-caseIDA allocation envelope. Second, as a diagnostic tool, the CPIA can indicate areas where attention needs to be focused and thereby influence the focus of the IDA-supported program; for example, the CPIA influences the ESW work program which may have an impact on the PRSP and, in turn, IDA's assistanceprogram and future CPIA results. Chart 3 summarizes the links between the recipient country and its PRSP on the one hand, and IDA's CPR and lendingenvelopes and the CAS on the other hand. 67 This provision was first included inIDA12, and was kept unchanged in IDA13. The use of these grants is expected to be very limited, and must comply with the policy framework approved by IDA's Executive Directors in July 2001 for the provision of these grants. 68 While these cases are rare, there are circumstances such as the recent Haiti transition where countries requireexceptional assistance due to severe insecurity and the partial or total collapse o f the state, but that are not eligible for IDA post-conflict assistance. 6o IDA's Performance-Based Allocation System: Current and Emerging Issues, IDA/R2003-0203, October 24, 2003. - 49 - Chart3-PRSP,IDA PerformanceRating, & CAS Country Policies & IDA Perf. Rating Institutions & Allocation 9 LendingEnvelopes 1 CAS I I I I - 50- ATTACHMENT I % of Projectsat Risk Rating 0% 6.0 1% 5.5 2% 5.0 3-4% 4.5 5 4 % 4.0 7-10% 3.5 11-15% 3.0 16-32% 2.5 33-60% 2.0 61-99% 1.5 100% 1.o - 5 1 - ATTACHMENT I1 IDA Allocation Formula Allocation Country i (3-year) = SDR3.3 million +Performance-BasedAllocation i (PBA i) where: (0 IDA RatingCountry i =(0.8 x CPIA i 0.2x ARPP i)x Govfact i + (ii) GovernanceFactor,=(averageratingof6governancecriteriai/3.5)"' (iii) TheEnvelope=IDAthree-yearenvelope,afterdeductionoftheotherwise determined blendallocations as well as the allocations to eligible post-conflict countries (iv> .Thecountry allocation norm i s subject to a maximum of $20per capita per annum. - 52 - ANNEX 2 Results Measurement InIDA14 Table 1. Tier 1: IDA14 Country Outcomes Indicators POP Most Most Countries Cover Base Recent Base Recenl Indicator unit of81 %" Year Year Value Value 1. Proportionof population % of pop. 48 91 99 00/02 33 33 below $l/day......poverty.......line ..._..___._ .... __ ..... ...................... ................................................................. ......................... ".. . . . . . . . . . . . . 2. Under-5 child mortality Per 1000 79 100 97/99 00102 125 120 .............. live births ...........-.................................................... ......................... .-............ .- -- - ............. 3. HIV prevalence rate of % of 44 90 99 01 2.3 2.5 _ _ women aged 15-24c female pop .... ..................... aged ._ ..... ....... ...................................... ...... .............. ~ 4. Proportionof births % of 52 82 97/99 00/02 40 44 attended by skilled health _ _ personnel __ .... .... ........................................ .................................................. ...... .....-................... 5. Ratio of girls to boys in % 52 79 97/99 00102 83 85 primary and secondary education .......................... "........................................................... ......................................................................................... .... ............. 6. Primary school completion %ofpop 55 72 97/99 00102 72 76 rate graduating officially ........................................... ........................................................................................ 7. Proportion of population % of pop 34 86 90 00 67 78 with access to a safe water source ....................................................................................................................................... ............ 8. Fixed lines and mobile Per 1000 79 100 97/99 00/02 21 40 telephone per 1,000 POP ............................................................................. inhabitants .......................................... 9. Formal cost required for % of GNI 38 88 02 04 91 73 business start up ......................................... per capita ........................ ............................. ._................ . . . . . . . . 10.Time requiredfor business Days 39 89 02 04 85 75 start-up ._. 11.Public expenditure No. of 24 13 01/02 n/a 6 .. management benchmarks met 12.GDPper capita Constant 77 97 97/99 00/02 459 487 . . . . 1995 $US 13.Access of rural population % of rural 31 87 95/03 n/a 63 ... to an all-season road POP 14:Household electrification ?kof 49 95 95/03 n/a 55 ... rate households ivotes: ( ) means insufficient data, ( d a ) means not applicable a Percent of IDA population in countries covered (excluding Timor-Leste) Three indicators have insufficient data to measure progress Because of changes in estimation methods over time, changes in prevalence are unlikely to be reliable ...< ........ ...... j j . ...... ; I ~ j ............ i 1 j j 1 ' f . . . . . . ,. E 2 h x Y b P8 aJ 1 f, 'i - N -e, f z e e vi 0 0 m a e, .-0 Y cd Y .- 2 .-2> 2 2 M L Ka C aC 0 zz-2.s M M M C C C i 6 a e e e e e e e e e e o Y0 .I a b m -22z a, c e, v1 W 3 3 E -0 -0 Yv1 '? -8E 5e, .+0 3 a e e e o e e a e e e e - - M M M m m .E .E .E 0 0 0 S s s 4 4C 6 6 6 M M M . . . . e e l e . e e . C 0 5 QJ * * e * * * * .s 8 e, 12 u S 0 .-S9 3 5 .C 3 x 5 I - Y 0 c .C .-cd 0 0 Y '? S 5 E 2b Y 8 -0 E e 1 0 -- Y 0 % 23 5 W m 0 -0 s8 .C k 0 S 5cd2. -0 4 c S 0 a -*2 se, u 4- 0 0 e, e, Y 3 S e, a a A A A - G e, e, yl % M u 2i E U 8 . ... 4 .?n e 5m Y su e . . . - 62 - ANNEX 3 INTERNATIONALDEVELOPMENTASSOCIATION BOARD OF GOVERNORS (Draft) ResolutionNo. Additionsto Resources: FourteenthReplenishment WHEREAS: (A) The Executive Directors o f the International Development Association (the "Association") have considered the prospective financial requirements of the Association and have concluded that it i s desirable to authorize a replenishment of the resources of the Association for new financing commitments for the period from July 1, 2005 to June 30, 2008 (the "Fourteenth Replenishment") inthe amounts and on the basis set out in the report of the IDA Deputies, "Additions to Resources: Fourteenth Replenishment, Working Together to Achieve the Millennium Development Goals" (the "Report"), approvedby the Executive Directors on [March lo,] 2005,and submitted to the Board of Governors; (B) The membersof the Association consider that an increase inthe resources of the Association i s required and intendto take all necessary governmental and legislative action to authorize and approve the allocation of additional resources to the Association in the amounts and on the conditions set out in this Resolution; addition(C) their subscriptions as part of the Fourteenth Replenishment ("Contributing Members of the Association that contribute resources to the Association in to Members") are to make available their contributions pursuant to the Articles of Agreement of the Association (the "Articles") partly in the form of subscriptions carrying voting rights and partly as supplementary resourcesinthe form of contributions not carrying voting rights; (D) Additional subscriptions are to be authorized for Contributing Members in this Resolution on the basis of their agreement with respect to their preemptive rights underArticle 111, Section 1(c) of the Articles, andprovision is madefor the other members of the Association ("Subscribing Members") intending to exercise their rights pursuant to that provision to do so; (E) I t i s desirable to provide for a portion of resources to be contributed by members to be paid to the Association as advance contributions; (F) Additional subscriptions and contributions are to be authorized for Contributing Membersto provide compensation for the Association's debt forgiveness commitments under the Heavily Indebted Poor Countries ("HIPC") Debt Initiative as established in 1996 and enhancedin 1999; - 63 - (G) Provisioni s made for the payment of additional subscriptionsand contributionscontingentuponprogress on specifiedmeasures; (H) It i s desirable to authorizethe Association to providefinancinginthe form of grants and guarantees in additionto loans; and (I) It i s desirableto administer any remainingfunds from the replenishment authorizedby ResolutionNo. 204 of the Boardof Governorsof the Association(the "Thirteenth Replenishment") as part of the FourteenthReplenishment. NOW THEREFORE THE BOARDOF GOVERNORSHEREBYACCEPTSthe Reportas approvedby the ExecutiveDirectors, ADOPTS its conclusionsand recommendations AND RESOLVESTHAT a general increase insubscriptionsof the Associationis authorizedon the following terms andconditions: 1. Authorizationof Subscriptionsand Contributions, The Associationi s authorizedto accept additionalresources from each ContributingMemberinthe amounts andas specifiedfor each such member inColumns(2) (3) (4) (5) and (9) of Table 1attachedto this Resolution,andeach such amount will be dividedinto a subscription carryingvotingrights and a contributionnot carryingvotingrights as specifiedin Table 2 attached to this Resolution. (9 As part of the resourcesdescribedinparagraphl(a) above, the Associationis authorizedto accept additional subscriptionsand contributionsfrom ContributingMembersto compensate the Associationfor the Association's debt forgiveness commitments under the HIPCDebtInitiativein the amounts andas specifiedin Column (9)of Table 1attachedto this Resolution. (ii) As part of the resourcesdescribedinparagraphl(a) above, the Associationis authorizedto accept additionalcontingent subscriptionsandcontributionsfrom ContributingMembers inthe amounts andas specifiedinColumn(4) of Table 1attached to this Resolution(a "Contingent Contribution"). The Associationi s authorizedto accept additionalresourcesfrom any member for which nocontributioni s specifiedinTable 2 attached to this Resolutionandadditionalresources from ContributingMembers incrementalto the amounts specifiedfor each suchmember inColumn (12) of Table 1attached to this Resolution; The Associationis authorizedto accept additionalsubscriptionsfrom each Subscribing Member in the amount specified for each such member in Table 2 attached to this Resolution. The rights and obligationsof the Association and the Contributing Members inrespect of the authorizedsubscriptionsandcontributionsin paragraphs (a) and (b) above will be the same (exceptas otherwise - 64 - provided in this Resolution) as those applicable to the ninety per cent portion of the initial subscriptions of original members payable under Article 11, Section 2(d) of the Articles of Agreement (the "Articles") by members listed inPart Iof Schedule A of the Articles. (e) It is confirmed that, in the absence of the express statement contained in paragraph l(d) of this Resolution in the authorizing resolutions for the ninththrough the thirteenth replenishments of the resourcesof the Association, the rights and obligations of the Association and Contributing Members in respectof such authorized subscriptions and contributions will be as providedinparagraph l(d) of this Resolution. 2. Agreement to Pay. (a) When a Contributing Member agrees to pay its subscription and contribution, or a Subscribing Member agrees to pay its subscription, it will deposit with the Association an instrument of commitment substantially inthe form set out inAttachment Ito this Resolution ("Instrument of Commitment") and, with respect to its contributionfor debt forgiveness under the HIPC Debt Initiative, a ContributingMember will either include such contribution in an Instrument of Commitment or make a HIPC Transfer Contribution, as definedand specified inparagraph 9(a) of this Resolution. (b) Whena Contributing Member agrees to pay a part of its subscription and contribution without qualification and the remainder i s subject to enactment by its legislature of the necessary appropriation legislation, it will deposit a qualified instrument of commitment ina form acceptable to the Association ("Qualified Instrument of Commitment"); such member undertakes to exercise its best efforts to obtain legislative approval for the full amount of its subscription and contribution by the payment dates set out inparagraph 3(b) of this Resolution. (c) Whena Contributing Memberagrees to pay part of its subscription and contribution as a Contingent Contribution, it will so specify in its Instrument of Commitment or Qualified Instrument of Commitment and will stipulate which of the conditions set out inthe Schedules to Attachment Ito this Resolution will apply to its Contingent Contribution, 3. Payment. (a) Each Subscribing Member will pay to the Association the amount of its subscription infull within 31days after the date of deposit of its Instrumentof Commitment; provided that if the Fourteenth Replenishment shall not have become effective by December 15,2005, payment may be postponed by the member for not more than 31days after the Effective Date as defined inparagraph 6(a) of this Resolution. (b) Each Contributing Member that deposits an Instrument of Commitment that i s not a Qualified Instrument of Commitment will pay to the - 6 5 - ' Association the amount of its subscription and contribution in three equal annual installments no later than: 31 days after the Effective Date or as agreedwith the Association; January 16, 2007; and January 15,2008; provided that: the Association and each Contributing Member may agree to earlier payment; iftheFourteenth Replenishment shall not havebecome effective by December 15, 2005, payment of the first such installment may be postponedby the member for not more than 31 days after the date on which the Fourteenth Replenishment becomes effective; the Association may agree to the postponement of any installment, or part thereof, if the amount paid, together with any unused balance of previous payments by the Contributing Member concerned, is at least equal to the amount estimated by the Association to be requiredfrom that member up to the due date of the next installment for purposes of disbursements for financing committed under the Fourteenth Replenishment; and ifanyContributingMemberdepositsanInstrumentof Commitment with the Association after the date when the first installment of the subscription and contribution i s due, payment of any installment, or part thereof, will be made to the Association within 31 days after the date of such deposit. IfaContributingMemberhasdepositedaQualifiedInstrument of Commitment and, upon enactment of appropriation legislation, notifies the Association that an installment, or part thereof, is unqualified after the date when it was due, then payment of such installment, or part thereof, will be made within 31 days after the date of such notification. Each ContributingMember that makes a Contingent Contribution, will pay to the Association its contingent contribution at the same time as payment of the next annual installment following the date of fulfillment of the conditions specified in its Instrumentof Commitment, or as agreed with the Association. 4. Mode of Payment. (a) Payments pursuant to this Resolution will be made, at the option of the member: (i) incash, on terms agreed between the member and the Association; or (ii) by the deposit o f notes or similar obligations issued by the govemment of the member or the depository designated by such member, which shall be non-negotiable, non-interest bearing andpayable at their par value on demand to the account of the Association. (b) The Association will encash notes or similar obligations of Contributing Members, on an approximately pro rata basis among donors, or as agreed - 66 - between a Contributing Member and the Association. With respect to a ContributingMember that i s unable to comply with one or more encashmentrequests, the Association may agree with the member on a revised encashment schedule that yields at least an equivalent value to the Association. (c) The provisions of Article IV, Section l(a) of the Articles will apply to the use of a Subscribing Member's currency paid to the Association pursuant to this Resolution. 5. Currency of Denominationand Payment. (a) Members will denominate the resources to be made available pursuant to this Resolution inSDRs, the currency of the member, or, with the agreement of the Association, in a freely convertible currency of another member, except that if a Contributing Member's economy experienced a rate of inflation inexcess of ten percent per annum on average inthe period 2001 -2003, as determined by the Association as of the date of adoption of this Resolution, its subscription and contribution will be denominated in SDRs. (b) Contributing Members will make payments pursuant to this Resolutionin SDRs, a currency usedfor the valuation of the SDR, or, with the agreement of the Association, in another freely convertible currency, and the Association may freely exchange the amounts received as requiredfor its operations. Subscribing Members will make payments in the currency of the member or ina freely convertible currency with the agreement of the Association. (c) Each member will maintain, inrespect of its currency paidby it under this Resolution, and the currency of such member derived therefrom as principal, interest or other charges, the same convertibility as existed on the effective date of this Resolution. (d) The provisions of Article IV, Section 2 of the Articles with respect to maintenance of value will not be applicable. 6. EffectiveDate. (a) The Fourteenth Replenishment will become effective and the resources to be contributed pursuant to this Resolution will become payable to the Association on the date (the "Effective Date") when Contributing Members whose subscriptions and contributions aggregate not less than SDR 7,353 million shall have deposited with the Association Instruments of Commitment, Qualified Instruments of Commitment or HIPC Transfer Notifications (as defined inparagraph 9 (b) of this Resolution), provided that this date shall be not later than December 15, 2005, or such later date as the Executive Directors of the Association may determine. - 67 - (b) Ifthe Association determines that the availability of additionalresources pursuant to this Resolution i s likely to be unduly delayed, it shall convene promptly a meetingof the Contributing Members to review the situation and to consider the steps to be taken to prevent a suspension of financing to eligible recipients by the Association 7. Advance Contributions. Inorder to avoid an interruptioninthe Association's ability to commit financing to eligible recipients pending the effectiveness of the Fourteenth Replenishment, the Association may deem, prior to the Effective Date, one third of the total amount of each subscription and contribution for which an Instrument of Commitment has been deposited with the Association, or for which a HIPC Transfer Notification (as definedin paragraph 9(b) of this Resolution) has been received by the Association, as an "Advance Contribution", unless the Contributing Member specifies otherwise in its Instrument of Commitment or HIPC Transfer Notification. The Association shall specify when Advance Contributions pursuant to subparagraph (a) are to be paidto the Association. The terms and conditions applicable to contributions to the Fourteenth Replenishment shall apply also to Advance Contributions untilthe Effective Date, when such contributions shall be deemed to constitute payment towards the amount due from each Contributing Member for its subscription andcontribution. Inthe event that the FourteenthReplenishment shall not become effective pursuant to paragraph 6(a) of this Resolution, (i) voting rights will be allocated to each member for the Advance Contribution as if it had been made as a subscription and contribution under this Resolution, and (ii)eachmember not making an Advance Contribution will have the opportunity to exercise its preemptive rights under Article 111, Section l(c) of the Articles with respect to such subscription as the Association shall specify. 8. CommitmentAuthoritv. (a) Subscriptions and contributions other than Contingent Contributions will become available for commitment by the Association for financing to eligible recipients inthree equal annual installments: (i) the first installment will become available to the Association for commitment from the Effective Date, provided that Advance Contributions may become available earlier under paragraph 7(a) of this Resolution; (ii) the secondinstallment will become available from July 1, 2006, and (iii) the third installment will become available from July 1, 2007. (b) Contingent Contributions will become available for commitment by the Association for financing to eligible recipients when and to the extent they - 68 - are paidto Association inaccordance with paragraphs 3 and 4 of this Resolution. (c) The Association shall promptly inform ContributingMembers if a member that has deposited a Qualified Instrumentof Commitment and whose subscription and contribution represents more than 20 percent of the total amount of the resourcesto be contributed pursuant to this Resolution has not unqualified at least 66 percent of the total amount of its subscription and contribution (excluding the amount of any Contingent Contribution) by January 16, 2007, or 31 days after the Effective Date, whichever i s later, and the total amount thereof by January 15, 2008, or 31 days after the Effective Date, whichever i s later. (d) Within 31 days of the dispatch of notice by the Association under subparagraph (c), each other ContributingMember may notify the Association in writing that the commitment by the Association of the second installment of such member's subscription and contribution shall be deferred while, and to the extent that, any part of the subscription and contribution referredto in subparagraph(c) remains qualified; during such period, the Association shall make no financing commitments to eligible recipients in respect of the resourcesto which the notice pertains unless the right of the Contributing Member i s waived pursuant to subparagraph (c). (e) The right of a Contributing Member under subparagraph (d) may be waived in writing, and it shall be deemedwaived if the Association receives no written notice pursuant to such subparagraph within the period specified therein. (f) The Association may enter into financingcommitments with eligible recipients conditional on such commitments becomingeffective and bindingon the Association when resourcesunder the Fourteenth Replenishmentbecome available for commitmentby the Association. 9. HIPC Contributions. (a) Contributing Members making an additional subscription and contribution to compensate the Association for forgiveness of debt under the HIPC DebtRelief Initiative, will do soeither: (i) an additional through subscription and contribution to the Association's regular resources (a "HIPC Additional Contribution") or (ii) through a contribution to the HIPC Debt Initiative Trust Fund(the "HIPC Trust Fund") administered by the Association (a "HIPC Transfer Contribution"). (b) Contributing Members making a HIPC Transfer Contribution will either (i) intoaContributionAgreementwiththeAssociationas enter administrator of the HIPC Trust Fund; or (ii) for Contributing Members that are already current contributors to the HIPC Trust Fund, send to the Association a notice of additional contribution, (each constituting a "HIPC Transfer Notification"). Such HIPC Transfer Notification will provide for - 69 - a contribution to be made to the HIPC Trust Fundin the amount set forth inColumn(9)of Table 1to this Resolution to be payable in three equal annual installments no later than 31 days after the Effective Date, January 16, 2007, and January 15, 2008; provided that the Association and each Contributing Member may agree to earlier payment. (c) When any amount of a HIPC Transfer Contribution i s paid to compensate the Association for forgiveness o f debt under the HIPC Debt Initiative, such amount of the HIPC Transfer Contributionwill be treated as a subscription and contributionunder the Fourteenth Replenishment. 10. Authorization of Grants. The Association i s hereby authorized to provide financing under the Fourteenth Replenishment inthe form of grants. 11. Authorization of Guarantees. The Association i s hereby authorized to provide financing under the Fourteenth Replenishment inthe form of guarantees. 12. Administration of IDA13 Funds under the Fourteenth Replenishment. (a) On the Effective Date, any funds, receipts, assets and liabilities heldby the Association under the Thirteenth Replenishment will be administered under the Fourteenth Replenishment, subject, as appropriate, to the terms and conditions applicable to the Thirteenth Replenishment. (b) Pursuant to Article V, Section 2(a)(i) of the Articles, the Association i s authorized to use the funds referred to inparagraph 12(a) above, and funds derived therefrom as principal, interest or other charges, to provide financing in the forms of grants and guarantees under the terms, conditions and policies applicable under the Fourteenth Replenishment. 13. Allocation of Voting. Rights under Fourteenth Replenishment. Voting rights calculated on the basis of the current voting rights system will be allocated to members for subscriptions under the Fourteenth Replenishment as follows: Each Subscribing Member that has deposited with the Association an Instrumentof Commitment will be allocated the subscription votes specified for each such member inTable 2 on the effective payment date pursuant to paragraph 3(a) of this Resolution. Each Subscribing Member will be allocated the additional membership votes specified in Columnc-3 of Table 2 on the date such member i s allocated its subscription votes. Each Contributing Member that has deposited with the Association an Instrument of Commitment will be allocated one third of the subscription votes specified for each such member inTable 2 on each effective payment date pursuant to paragraph 3(b) of this Resolution. Each Contributing Member will be allocated the additional membership votes specified in Column b-4 of Table 2 for its subscription on the date such member i s allocated the first one third of its subscription votes. - 7 0 - (c) Each Contributing Member that has made a HIPC Transfer Contribution will be allocated a proportionate share of the subscription votes specified for such member in Column b-3 of Table 2 from time to time and at least annually following payment of any amount of its HIPC Transfer Contribution to compensatethe Association for forgiveness of debt under the HIPC Debt Initiative. (d) Each Contributing Member that has made a Contingent Contribution will be allocated subscription votes at the time and to the extent of payments made inrespect of its related subscription and contribution. (e) Each member that has deposited with the Association a Qualified Instrument of Commitment will be allocated subscription votes at the time and to the extent of payments made inrespect of its subscription and contribution. (f) Any member that deposits its Instrument of Commitment after any of the dates specified in paragraph 3(b) of this Resolution will be allocated, within 31days of the date of such deposit, the subscription votes to which such member i s entitled on account of such deposit. (g) Ifamember fails to pay any amount of its subscription or subscription and contribution when due, the number of subscription votes allocated from time to time to such member under this Resolution inrespect of the Fourteenth Replenishment will be reduced inproportionto the shortfall in such payments, but any such votes will be reallocated when the shortfall in payments causing such adjustment i s subsequently made up. I .. ! E g.. 0 0 0 0 0 o o o o g0 0 0 0 0 0 ~ 0 0 0O O O O O 0 0 0 0 0 0 0 0 0 ' ) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OL 3 I 2 U O O O O O 0 0 0 0 N0 0 0 0 0 o $ ? o o o0 0 0 0 0 O O O O O 0 0 0 0 ~0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 C ' U h j ; f i f ? 8b 2 - 2 3 f r v I r I e m E 8 B E I P 3 - 76 - Attachment I INTERNATIONAL DEVELOPMENTASSOCIATION ADDITIONS TO RESOURCES: FOURTEENTH REPLENISHMENT INSTRUMENT OF COMMITMENT Reference i s made to Resolution No. __ of the Board of Governors of the International Development Association entitled "Additions to Resources: Fourteenth Replenishment", which was adopted on ,2005 ("the Resolution"). The Government of HEREBYNOTIFIESthe Association pursuant to paragraph 2 of the Resolution that it will make the 71/authorized for it inaccordance with the terms of the Resolution inthe amount of 72/13 (Date) (Name and OfJice) 71/ Thisform of Instrument of Commitment may be usedfor a Contributing Member's regular contribution and any HIPC Additional Contribution, either under separate instruments or combined. Contributing Membersfill in the words "subscription and contribution" for both regular contributions and HIPCAdditional Contributions; and Subscribing Membersfill in the word "subscription" only. 72/ Pursuant toparagraph 5(a) of the Fourteenth Replenishment Resolution, members are required to denominate their subscription and contribution, or subscription only, as the case may be, in SDRs, in the currency of the member, or with the agreement of the Association in afreely convertible currency of another member. Payment will be made as provided in paragraph 5(b)of the Resolution. 73 For additional contingent contributions, add thefollowing text " The Govemment of HEREBY NOTIFIES the Association pursuant to paragraph 2(c) of the Resolution that it will make an additional subscription and contribution [with respect tofiscal year 2006 in the amount of , contingent upon the actions setforth in Schedule A hereto]; and an additional subscription and contribution with respect tofiscal year 2007 in the amount of Contingent upon the actions setforth in Schedule B hereto.'' 74/ The instrument is to be signed on behalf of the member by a duly authorized representative. - 77 - Schedule A to Attachment I Progress bv September 2005 0 Introductionby the Association of regional Key Performance Indicators measuring progress on harmonization, including: 9 number andpercentageofIDA country analytical work undertakenjointly with one or more donors. 9 percentageofannualIDA-financedSWApsandDevelopmentPolicy operations usingapolicy framework coordinated with other donors. 0 Introductionby the Association of Country Assistance Strategy (CAS) guidelines providing that the CAS should include: 9 adiscussionoftheroleofdevelopment partners,donor coordination mechanisms and enabling measures to improve country-level harmonization of donor procedures. 9 informationontheroleofeachdonor andthe sectorsor thematic areasin which each i s active. 9 indicators forprogressondonor harmonization duringthe CASperiod. 0 Review by the Executive Directors of the Association of the recommendations of the 2005 Review of World Bank Conditionality. - 78 - Schedule B to Attachment I Progress by IDA14 Mid-term Review 0 Review by the Executive Directors of the Association of (i)a monitoring framework for harmonization including a series of key indicators drawing on the results of the D A C High Level Forum (HFL-2) and (ii) baselines established by the Association for such indicators; and adoption by the Association of such monitoring framework. Determinationby the Executive Directors of the Association that satisfactory progress has been made against the baselines established for such harmonization indicators. Determinationby the Executive Directors of the Association that satisfactory progress has been made inimplementingthe recommendations in the 2005 Review of World Bank Conditionality. - 79 - ANNEX 4 DOCUMENTS PROVIDEDFOR THE IDA14 REPLENISHMENT MEETINGS75 February 18-20,2004-Paris, France Discussion Papers: Further Optionsfor IDA13 Grant Financing(January 2004) IDA's Performance-BasedAllocation System: Updateon OutstandingIssues (February 2004) ProposedTimeline for the IDA14Process (February2004) IDA14ReplenishmentPriorities: ProposedSpecialThemes (February 2004) InitialDraft Part 1of the Deputies'Reportfor IDA14(February 2004) Modalities of IDA13 GrantFinancing: TechnicalNote (March 2004) Background and Technical Notes: Debt Relief for the Poorest: An OED Review of the HIPC Initiative (May 2003) TowardCountry-LedDevelopment: A Multi-PartnerEvaluation of the ComprehensiveDevelopmentFramework(June 2003) 2002 Annual Review of DevelopmentEffectiveness(by OED) (April 2003) July 9-11,2004- Hanoi,Vietnam Discussion Papers: IDA13 Results-MeasurementSystem: Spring 2004 Update (May 2004) DebtSustainability andFinancingTerms in IDA14 (June 2004) FinancingRequirementsfrom IDA for PoorCountriesduring IDA14 (June 2004) IDA ResultsMeasurement System: Recommendationsfor IDA14 (June/July 2004) Country Policy andInstitutionalAssessments: An ExternalPanelReview - Panel RecommendationsandManagement(June 2004) Background and Technical Notes: IDA14OpinionLeadersConsultation: SummaryofDiscussions(July 2004) October4-6,2004 -WashingtonDC, UnitedStates Discussion Papers: Growth in IDA Countries (September 2004) Debt Sustainability andFinancingTerms in IDA14: Technical Analysis of Options and Issues (September 2004) IDA's Performance-BasedAllocation System: IDA RatingDisclosureandFine- tuning the Governance Factor (September 2004) Strengtheningthe PrivateSector in IDA14 (September 2004) 75 In addition, a number of background notes and tables on financial issues were circulated to Deputies over the course of the Replenishment discussions. - 80 - Worki,ngTogether at the Country Level: The Role of IDA (September2004) HIPC Papers: Heavily IndebtedPoor Countries(HIPC) Initiative: Status of Implementation (AugustBeptember2004) Background and Technical Notes: IncreasingAid Effectivenessand the RoIe of IDA: Lessonsfrom the Vietnam Experience(JointJapardUK paper for IDA14) (September 2004) December 12-13,2004 Athens, Greece - Discussion Papers: Strengtheningthe PrivateSector inIDA Countries: World BankGroup's Collaborationwith ExtemalPartners (November 2004) Aid Delivery inConflict-Affected IDA Countries: The Roleof the World Bank (November 2004) Indicatorson Aid HarmonizationandAlignment (November2004) Strengtheningthe Private Sector in IDA Countries: Status of World BankGroup Collaboration(November 2004) FinancingFrameworkfor IDA14: PendingIssues (NovemberDecember2004) MeasuringResults: ImprovingNationalStatistics inIDA Countries (Novembermecember2004) Debt Sustainabilityand FinancingTerms inIDA14: Further Considerationson Issues and Options (NovemberDecember2004) SupportingSmallandVulnerable States (December 2004) February 22,2005 -WashingtonDC, United States DiscussionPapers: Update on Developmentssince the Athens Meeting(February2005) Background and TechnicalNotes: World BankResponse to the TsunamiDisaster (January 2005) Chairman's Summariesof IDA14 ReplenishmentMeetings IDA14ReplenishmentMeeting-February 18-20,2004 -Paris (February 2004) IDA14ReplenishmentMeeting-July 9-11, 2004 -Hanoi (July 2004) IDA14 ReplenishmentMeeting-October4-6, 2004 -Washington, DC (October2004) IDA14 ReplenishmentMeeting-February 22, 2005 -Washington, DC (February 2005) IDA14ReplenishmentMeeting-December 13-14,2004-Athens (December2004)