ANNUAL IXEPQRT ON PORTFOLIO PEIEEIFOMANCE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized ANNUAL IXEPQRT ON PORTFOLIO PEIEEIFOMANCE QUALITY ASSURANCE GROUP FISCAL YEAR 26 FEBRUARY 13, 27 (MAIN REPORT) 46144

2 ACRONYMS AND ABBREVIATIONS AAA AFR APL ARD ARPP CAS CAAA CFAA CEM CMU CODE CPAR CPIA CPPR CSR DO DPL EAP ECA ED EMT ENV EP ERL ESSD ESW FSE FY GEF GRAAA HDN HNP HR IBRD ICR ICRR IDA IEG IG INF INV Analytic and Advisory Activities Africa Region Adaptable Progra Loan Agriculture and Rural Developent Sector Board Annual Report on Portfolio Perforance Country Assistance Strategy Country Analytic and Advisory Activities Country Financial Accountability Assessent Country Econoic Meorandu Country Manageent Unit Coittee on Developent Effectiveness Country Procureent Assessent Review Country Policy and Institutional Assessent Country Portfolio Perforance Review Controller s, Strategy and Resource Manageent Developent Objectives Developent Policy Lending East Asia and Pacific Region Europe and Central Asia Region Education Sector Board Energy and Mining Sector Board Environent Sector Board Econoic Policy Sector Board Eergency Recovery Loan Environentally and Socially Sustainable Developent Network Econoic and Sector Work Finance Network Fiscal Year Global Environent Facility Global and Regional Analytic and Advisory Activities Huan Developent Network Health, Nutrition and Population Huan Resources International Bank for Reconstruction and Developent Ipleentation Copletion Report ICR Review International Developent Association Independent Evaluation Group (forerly OED) Investent Grade Infrastructure Network Investent Operations IP ISR KPI LCR LICUS MDGs M&E MIC MNA MP NLTA OESW OPCS PCR PER PIP PN PPAR PREM PRSC PSG PSDN QAG QEA QER QSA RTA SAP SAR SDV SF SFR SP TA TF TR TTL UD VPU ws Ipleentation Progress Ipleentation Status and Results Report Key Perforance Indicators Latin Aerica and the Caribbean Region Low-Incoe Countries Under Stress Millenniu Developent Goals Monitoring and Evaluation Middle-Incoe Countries Middle East and North Africa Region Montreal Protocol Non-Lending Technical Assistance Other Econoic and Sector Work Operations Policy and Country Services Network Project Copletion Report Public Expenditure Review Portfolio Iproveent Progra Policy Notes Project Perforance Assessent Report Poverty Reduction and Econoic Manageent Network Poverty Reduction Support Credit Public Sector Governance Board Private Sector Developent Network Quality Assurance Group Quality-at-Entry Assessent Quality Enhanceent Review Quality of Supervision Assessent Reibursable Technical Assistance Systes, Applications, and Products South Asia Region Social Developent Sector Board Special Financing Strategy, Finance and Risk Manageent Social Protection Sector Board Technical Assistance Trust Fund Transport Sector Board Task Tea Leader Urban Developent Sector Board Vice Presidential Unit Water Supply and Sanitation Sector Board (forerly WSS)

3 ANNUAL REPORT ON PORTFOLIO PERFORMANCE FISCAL YEAR 26 CONTENTS EXECUTIVE SUMMARY... i-iv I. Introduction... 1 I1. Portfolio Size and Coposition... 2 I11 Portfolio Perforance IV. Analytic and Advisory Activities V. Recoendations BOXES Box 2.1 : Box 2.2: Box 2.3: Box 2.4: Box 2.5: Box 3.1: Box 3.2 Box 3.3: Box 3.4: Box 4.1: Box. 4.2: Box 4.3: The Portfolio Dynaics... 3 Quality-at-Entry of IBRD/IDA Guarantees... 5 Ipleenting the Infrastructure Action Plan: Supporting the Energy Counity of South Eastern Europe (ECSEE)... 8 Prograatic Support for Long-ter Change: Civil Service Refor in Tanzania... 9 Custoized Country Partnership: The Case of Kazakhstan... 1 Rating Scale Africa Region HIV/AIDS Portfolio Evolution of PPAR Coverage by IEG Strengthening Supervision of Proble Projects: The Africa Approach Selected Country AAA Progras with High Likely Ipacts Shocks and Social Protection in Central Aerica: Lessons fro the Coffee Crisis Costs of copliance with International Agro-Food Standards: A Global Perspective FIGURES Figure. 2.1: Key Trends... 4 Figure 2.2A: Investent Approvals... 6 Figure 2.2B: Developent Policy Lending Approvals... 7 Figure 3.1 : Developent Outcoes Figure 3.2: FY5-6 Outcoes for Soe Selected Clients... 2 Figure 3.3A: Quality of Supervision by Diension, QSA6 and QSA Figure 3.3B: Quality of Supervision by Diension, QSA Figure 3.4: Net Disconnect between IEG Outcoes and ISR Ratings during FY

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5 Annual Report on Portfolio Perforance FY6 i EXECUTIVE SUMMARY 1. The Annual Report on Portfolio Perforance provides the Board and Senior Manageent with a strategic overview of the size, coposition and quality of the Bank s lending portfolio and the Analytic and Advisory Activities (AAA) progra. It also provides Senior Manageent real tie inforation to assess what is working well, or less well, together with recoendations on easures to sustain or iprove the quality and effectiveness of the lending portfolio and of the AAA progra -- two key vehicles for delivering results to our clients. LENDING PORTFOLIO SIZE AND COMPOSITION 2. The Bank s FY6 portfolio (1,468 operations with $95.2 billion of net coitents) shows relative stability by coparison with FY5, along with continued strength in IDA and INF approvals and iproved resource transfer. However, net coitents reain about 12 percent lower than at the end of FYO1. Notwithstanding the shrinkage in net coitents, disburseents in FY6 were 21 percent higher than the FYOl level due to the shift towards quick-disbursing DPLs (Developent Policy Lending) as well as the iproved disburseent perforance for investent operations. IBRD net coitents account for 56 percent of the total (as against 64 percent in FYO1) with IDA S share increasing to 42 percent fro about onethird five years ago. 3. Annual approvals in FY6 reached $23.9 billion, continuing the upward oveent of the previous two years. The significantly higher level of IBRD investent approvals achieved in FY5 was increased further in FY6. For IDA, the FY6 approvals were the highest level ever, and consistent with the agreed Bank priorities; one-half of the were in the Africa Region. Overall, however, the increased approvals in FY6 were offset by increased exits-ostly due to unusual bunching in closure of several large DPLs in LCR. 4. At a ore disaggregated level, over the past five years, there have been several noteworthy shifts aong Regions and Networks. AFR s share of total net coitents grew fro 13 percent to 2 percent while both LCR and EAP shrank significantly-reflecting a general shift towards the poorer clients and in the case of LCR, greater use of fast-disbursing, single-tranche operations. Aong the Networks, net coitents over the last five years declined for HDN and ESSD. However, with soe investents in rural and social infrastructure now being financed as part of ulti-sectoral projects anaged by other Networks, the actual reductions in net coitents are not quite as large as they ay appear. Finally, data for the past two years show positive results fro the Middle-Incoe Countries (MIC) and Infrastructure initiatives, as well as fro recent easures to odernize, strealine, and siplify Bank processes. These efforts have helped ste the decline in IBRD net coitents while increasing the relevance of Bank support and providing a stronger basis for increased investent lending and faster disburseents. LENDING PORTFOLIO PERFORMANCE 5. Project-level IEG evaluations continued the positive trend of the past decade and the share of satisfactory outcoes now hovers around 8 percent. Developent outcoes for IDA

6 Annual Report on Portfolio Perforance FY6 11 projects achieved a 77 percent satisfactory rating, which, although still below the 85 percent outcoe for IBRD operations, are an iproveent over previous years. Bank anageent has recently taken active easures to enhance the Bank s perforance and organizational response to Fragile states whose 56 percent satisfactory outcoe level reains of concern. 6. Considerable variations exist in developent outcoes between Regions and Sectors. Two regions, AFR and MNA, continue to trail the Bank s average based on nuber of projects, though the difference is saller in ters of net coitents. Aong the Sectors, Transport with over 9 percent satisfactory outcoes is the best perforer overall. Finance, Social Protection and Water Supply and Sanitation also show significantly above-average perforance. At the other end, the outcoes for the Environent, Public Sector Governance, Health and Private Sector Developent reain a atter of concern, especially because progress in these areas is at the heart of the MDG agenda. Aong lending instruents, Developent Policy Lending (DPLs) at 83 percent satisfactory perfored better than Investent operations (INV) which were at 77 percent in ters of nubers but the two are virtually identical in ters of lending volues. BANK PERFORMANCE 7. Evaluation data suggest that while country factors are the strongest predictors of project outcoes, Bank perforance is also a ajor contributory factor. Satisfactory Bank perforance during preparation and appraisal leads to better project designs, adapting global knowledge to country circustances. Tiely risk identification and itigation during project supervision also contributes to better outcoes. 8. Results fro the latest Quality-at-Entry and Quality of Supervision assessents indicate continued solid perforance with ajor deficiencies liited to no ore than five to ten percent of the total saples. However, in about a third of the cases the Bank s perforance is only Moderately Satisfactory, suggesting significant issed opportunities. Areas for iproveent vis-&vis Quality-at-Entry include: (i) lowering project coplexity to atch it better with the country s institutional capacity; (ii) better risk assessent and itigation; (iii) introducing a workable results fraework; and (iv) ensuring readiness for ipleentation at entry. For iproving supervision perforance, the focus needs to be on: (a) tiely identification and assessent of threats to the developent outcoes; (b) paying ore attention to institutional capacity building; (c) aking effective use of perforance indicators; (d) having anagers devote ore tie to guiding staff on supervision issues; and (e) greater candor in rating the quality of project ipleentation. MANAGING PORTFOLIO PERFORMANCE 9. Effective anageent of the portfolio perforance depends critically on a sound syste for tracking portfolio status and for tiely identification of risks. Despite long-standing efforts to iprove the quality of portfolio reporting (ost recently through the refor of the ISR syste in early 25), under-reporting of risks reains a proble. Findings fro the recently copleted assessent of Supervision Quality suggest that in FY6, less than half of the probleatic projects were so identified by staff and anagers in the ISRs. QSA findings also point to

7 Annual Reuort on Portfolio Perforance FY6 iii frequent failures in the ISRs to trigger risk flags (e.g., Project Manageent probles, Financial Manageent probles or weak M&E systes) to facilitate early resolution of these probles. 1. Extrapolating the findings fro the latest Supervision Assessent, a ore realistic estiate of the current Project-at-Risk is likely to be about 25 percent, significantly higher than the 14 percent level reported in the ISRs. One ajor consequence is that portfolio perforance indicators derived fro the ISR database--projects-at-risk, the Realis Index, and the Proactivity Index--have now becoe less reliable and eaningful concepts for tracking and anaging the portfolio perforance. They do not provide early warning of risks that threaten the achieveent of project developent objectives thereby underining the Bank s ability to adopt appropriate corrective easures. The ost probleatic in this respect is the Realis Index Based on a specially coissioned review of the experience with the current Project-at- Risk Syste as well as evaluation findings fro the IEG, the ARPP recoends revising the current Realis Index to ake it a ore eaningful easure of the quality of portfolio reporting. The proposed change would link it directly to actual recent outcoes reported by IEG, lowering the end FY6 index fro an 8 percent level under the current syste to about 5 percent. EAP and MNA aong Regions, and Environent and Urban Developent aong Sectors, would experience the greatest change. In contrast, the change for LCR, Transport and Social Protection is likely to be quite inial. The target for the Revised Realis Index would be retained at the 7+ percent level. Depending upon the ipact of this change, the other portfolio indicators ay also need to be revisited in the coing year. 12. Beyond systes and easures, the ain issue at the core of project perforance ratings is the inadequate accountability of those using and signing off on perforance and risks in project ipleentation. Senior Manageent needs to ensure that the incentives to and accountabilities of staff and anagers are re-balanced to support a ore robust risk anageent syste during supervision. ANALYTIC AND ADVISORY ACTIVITIES 13. Analytic and Advisory Activities (AAA) are a key coponent of the Bank s toolkit for prooting econoic developent and reducing poverty aong its clients. They provide the basis for the Bank s policy dialogue with clients, the developent of country assistance strategies and the design of effective lending progras. They are also an iportant instruent for building institutional capacity and prooting aid coordination and haronization aong the donor counity. During FY6, the Bank spent a total of $222 illion on AAA--alost 3 percent of the total expenditure on country services. 14. AAA expenditures have grown fro $143 illion in FY2 to $222 illion in FY6, reflecting a Bank strategy to bolster its AAA progra. This period was characterized by a sharp increase in expenditures and deliveries between FY2 and FY3 and a odest decline between FY5 and FY6. The increased focus on AAA resulted in a rise in the share of country services allocated to AAA (Le., the Country AAA intensity ) fro 24 percent in FY2 to 29 percent in FY6. Consistent with the agreed LICUS initiative, there has been a rapid increase in AAA expenditures in the LICUS countries with the AAA intensity increasing fro 18 percent in

8 Annual Report on Portfolio Perforance FY6 iv FY2 to 3 percent in FY6. With the progress ade in reducing the backlog of Core Diagnostic Reports, the AAA focus has been shifting towards deand-driven tasks in support of the Infrastructure Initiative and the MDG agenda. Expenditures for Global and Regional tasks are also becoing a ore iportant part of the AAA progra. 15. Various quality assessents suggest steady iproveent in AAA relevance and likely ipact with 9+ percent of the AAA work now rated satisfactory. However, there is scope for greater ipact through ore attention to dialogue and disseination aspects. 16. Over the past few years, QAG assessents have pointed to nuerous errors in task coding and reporting in the Bank's inforation systes. This report has identified additional weaknesses that affect data reliability and diinish the value of trend analysis. Despite ajor efforts over the past few years in strengthening the planning, tracking and anageent oversight of the AAA progra, these areas reain a cause for concern with potential for significant further gains. RECOMMENDATIONS 17. A stocktaking of the ARPP follow-up to the recoendations of the last ARPP suggests only odest progress, reflecting in part the relatively long lead ties needed for results in soe of the areas. In particular, the realis of portfolio risk ratings and the anageent of the AAA progra continue to be probleatic with significant scope for iproveent. Most recoendations ade last year still reain valid. Taking into account the carry over agenda fro the last ARPP and the findings fro this ARPP, the key recoendations' are as follows: Address the areas of weaknesses and issed opportunities during project appraisal and supervision focusing; Strengthen accountabilities of teas and anagers and exaine how to achieve greater realis in portfolio reporting; Modify the current Realis Index, basing it on recent IEG evaluations, to ake it ore robust and less susceptible to under-reporting of risk; and Strengthen anagerial oversight to iprove tracking and anageent of the AAA progra. ' The full list of recoendations can be found in Chapter V.

9 Annual Report on Portfolio Perforance FY6 1 I. INTRODUCTION OBJECTIVES AND APPROACH 1.1 The Annual Report on Portfolio Perforance provides the Board and Senior Manageent with a strategic overview of the size, coposition and quality of the Bank s portfolio and the Analytic and Advisory Activities (AAA) progra2. It also provides Senior Manageent real tie inforation to assess what is working well, or less well, together with recoendations on easures to sustain or iprove the quality and effectiveness of the lending portfolio and o f the AAA progra-- two key vehicles for delivering results to our clients. 1.2 The FY6 ARPP draws on aterials that are prepared as part of regular portfolio onitoring functions carried out by the Regions and Networks, suppleented by project/portfolio data in the Bank s anageent inforation systes. It also draws on assessents and data coissioned fro several special studies. Consistent with past ARPPs, the report uses a five-year tiefrae (FYO1-6) to exaine ediu-ter trends in the portfolio. In preparing the ARPP, extensive consultations were held with anagers and staff fro around the Bank. STRUCTURE AND COVERAGE 1.3 The report is organized into five Chapters. Chapter I1 reviews the recent trends in size and coposition of the lending portfolio. It analyzes trends by source of financing, instruent, Regions, grouping of countries, Networks, Sectors and Thees. Chapter I11 assesses overall portfolio perforance results as well as issues associated with easuring and reporting the risks of the portfolio of lending operations not achieving their developent objectives. It discusses easureent of reported outcoes and outlines soe suggestions for iproving the assessent of developent outcoes for the Bank portfolio. It also discusses changes in the Realis Index to ake it a ore eaninghl easure of the quality of portfolio reporting. Chapter IV takes stock of the Analytic and Advisory Activities. It focuses particularly on trends in the progra size, deliveries, and quality of AAA, drawing on selected recent QAG assessents. Chapter V exaines progress in ipleenting recoendations of the FY5 ARPP, and suarizes this year s key recoendations. The Statistical Appendix contains a detailed set of supporting statistical aterial. As agreed with CODE, and in order to avoid duplication, this ARPP does not address directly the Results agenda, which is to be the subject of a separate report by the Results Secretariat. AAA product lines discussed in this report are ESW and TA. ESW and TA include fee-based and reibursable tasks. Other AAA product lines not covered here include Donor and Aid Coordination, Research Services, World Developent Report and Ipact Evaluation.

10 Annual Report on Portfolio Perforance FY PORTFOLIO SIZE AND COMPOSITION 2.1 The Bank s portfolio reained relatively steady in FY6, arresting the declining trend of several years until FY4. IBRD and IDA approvals in FY6 increased strongly but this was offset by exits of a siilar aount. The upward trend of increased share of the Africa Region in the total portfolio also continued. Aongst Networks, INF and ESSD are the only large Networks that increased their portfolio. FY6 IDA approvals were the highest ever, and one-half of the were in the Africa Region. Measures ipleented under the odernization and siplification agenda have resulted in a strong portfolio of Siple and Repeater operations and in Additional Financing operations with lower processing tie and costs. Portfolio coposition has continued to shift fro higher to lower incoe level countries. Disburseents in FY6 also registered a strong increase fro FYOl and FY5. PORTFOLIO SIZE AND TRENDS 2.2 The Bank s portfolio consists of 1,468 operations with net coitents of $95.2 billion3 in FY6 (Box 2.1). Net coitents have been relatively stable in real ters4 for the past three years but are soe 25 percent below its peak level in FY99 (Figure 2.1). Continuing the healthy recovery of the past few years, approvals in FY6 reached $23.9 billion and were eight percent higher than FY5 and 23 percent above the level 1 years ago. Disburseents in real ters this year were soe 11 percent higher than in FY5, reflecting the expansion in new approvals over the past three years. The current disburseents ($2.9 billion) are at about the sae level as ten years ago (the disburseent levels reached in FY98-99 were an anoaly reflecting the Bank s response to the East Asia and Russian Financial Crises). The coendable disburseent perforance reflects an increase in fast-disbursing Developent Policy Lending (DPL), and an increase in the disburseent ratio for investent operations to 24 percent fro 2 percent 1 years ago. 2.3 The portfolio size in the future will depend largely on the level of IDA replenishent, and on the level of Bank engageent with IBRD partner countries, in particular through successful ipleentation of the odernization and siplification agenda to reduce the costs of doing business. Based on current plans, annual approvals during FY7-9 are expected to be in the $22-25 billion range, and the portfolio is expected to stabilize around the current level. Portfolio and approval figures do not include guarantees. A ore detailed definition of the portfolio is in Annex 2, and a description of portfolio dynaics is provided in Box 2.1, Trend lines in Figure 2.1 are in real ters. All other financial data in this chapter are in noinal ters.

11 Annual Report on Portfolio Perforance FY6 3 Box 2.1 : THE PORTFOLIO DYNAMICS The portfolio as defined in the ARPP is a stock concept. Lending by contrast is a flow. The Bank portfolio consists of the IBRD loans, IDA credits and grants, GEF grants, Montreal Protocol, and Special Financing operations (financed in part out of the Bank s net incoe). It only includes operations that are active at the end of the fiscal year. It excludes operations which are closed or fully disbursed during the year. It is recorded as the su of individual operations coitents, net of cancellations, if any. The chart below illustrates those relationships for FY6 based on the Business Warehouse (BW) data. +$23.9B (31 Operations) of which: 33 Single Tranche Operations 1 Opening Balance $95.5B Closing Balance* (1,451 $95.2B Operations) of L which $19.7B (1,468 Exits during Operations) t (29 Operations) etroactive Extension * Closing balance of FY6 includes approxiately $.7 billion (6 projects) in projects closed in previous years, which were reopened in FY6.

12 Annual Report on Portfolio Perforance FY6 4 FIGURE 2.1: KEY TRENDS (FY97=1) I 16, al > al 8 6 FY96 FY97 FY98 FY99 WOO FYOl FY2 FY3 FY4 NO5 FY6 -a- Approvals in FY -+-Disburseents -- Net Coitents 2.4 End-year portfolio figures do not capture quick-disbursing operations that enter and exit the portfolio during the sae fiscal year because of their single tranche design (see Box 2.1). In FY6, there were 33 such operations for a total of $4.1 billion in coitents, accounting for 17 percent of total approvals (Table 2.1); these figures represent a quadrupling in nuber and ore than doubling in dollar ters over FYOl levels. A contributing factor to this trend was the increasing use of prograatic Developent Policy Lending (DPL) in a series of operations, phased to support countries in achieving their refor progras within an integrated fraework, with triggers for oving fro one operation to the next. While this trend first began in LCR, which continues to be a very large user of DPLs, it is now also significant in all other regions except MNA. Not surprisingly, the processing cost of these operations (Bank average preparatiodappraisal and supervision costs of $358, and $3 1,, respectively) copare very favorably with those of all other operations ($489, and $321,, respectively). However, the ipact of these single tranche DPLs on longer ter institutional refors reains to be assessed. TABLE 2.1: SINGLE TRANCHE LOANS/CREDITS BY REGION (us$ MILLION) FYOl FY5 FY6 Region No. of $ No. of $ No. of $ Projects Aount Projects Aount Projects Aount AFR EAP ECA LCR 3 1, ,13 7 1,433 MNA SAR , Bank-wide 8 1, , ,129 GUARANTEES 2.5 Guarantees are available to all countries eligible for borrowing fro IBRD or IDA to obilize private sector participation, help catalyze debt with extended aturities, and lower financing costs. Such guarantees ai to reduce risks of private transactions in eerging arkets,

13 Annual Report on Portfolio Perforance FY6 5 itigate risks that are beyond the control of the private sector, open new arkets and iprove project sustainability. By end FY6, 31 Guarantee operations ($2.5 billion) for 29 projects had been approved, with an estiated $1.2 billion of private capital obilized. Approvals include eight partial credit, 21 partial risk, and two policy-based Guarantees. The ajority of approvals since inception of the Guarantee progra have been for infrastructure projects, with AFR accounting for ost of the recent approvals and potential guarantee operations. Partial Risk Guarantee covering debt service default on loans to private sector projects caused by governent failures to eet contractual obligations to private investors is the ost coon type of guarantee used in recent years. In FY6, three Guarantees for a total of $64 illion were approved for two projects. BOX 2.2: QUALITY-AT-ENTRY OF IBRDDDA GUARANTEES The QAG assessent covered all nine IBRD and IDA Guarantees approved in FY5/6. Six Guarantees are in Africa, and one each in EAP, ECA, and LCR. The review concludes that: The Guarantee instruent is useful for supporting private sector investents in infrastructure, particularly in Afiica. The use of the Guarantees to support privatizatiodconcessioning of existing assets is a creative extension of the Guarantee progra. It offers potential for replication in other countries; The use of Guarantee as the instruent of choice for Bank/IDA support was assessed to be generally appropriate; There has been good cooperation aong the Bank, MIGA and IFC staff; Overall the Quality-at-Entry of Guarantees was rated 78 percent Satisfactory. While three are rated Highly Satisfactory, two were rated Unsatisfactory; Understanding of the Guarantee instruent is still inadequate aong staff, especially the basic acroeconoic and sector policy requireents that should underpin a Guarantee. The risk of the Guarantee being called, which should be at the heart of risk assessent for Guarantees, was rarely assessed; Inadequate readiness for ipleentation was the ost coon weaknesses for guarantees rated Moderately Satisfactory or less. As a result, several Guarantees have encountered significant delays in reaching fancial closure; Attepts to wholesale Guarantees through interediaries show certain issues of policy and practice that ust be resolved if the Bank is to pursue this type of Guarantees; and The internal review process for Guarantees has been weak and was insufficiently focused on technical design aspects. There is a need for both siplifying and strengthening the process. Follow up to soe of these findings and recoendations are already underway. I I 2.6 Because of their unique characteristics, the Guarantee aounts are not included in the portfolio figures discussed in this chapter. The Bank's portfolio of 31 Guarantees is spread through six regions, with AFR and EAP leading with nine and seven operations respectively followed by ECA with four operations. The highest Bank exposure is however concentrated in the EAP and ECA regions. The Power Sector accounts for 6 percent of Guarantee operations, followed by the Financial Sector with 1 percent. There are 19 new operations currently under preparation. Given the growing volue of Guarantees, and in response to senior anageent request, QAG carried out an assessent of Quality-at-Entry of Guarantees approved in FY5/6 and preliinary findings are

14 Annual Report on Portfolio Perforance FY6 6 suarized in Box 2.2. [Note: Findings are preliinary because the assessent report is yet to be finalized]. IBRD PORTFOLIO 2.7 The Bank portfolio is coposed of IBRD loans, IDA credits, Global Environent Facility (GEF)/Montreal Protocol (MP), and Special Financing (SF) grant funds. IBRD net coitents of $53.1 billion account for the largest part (56 percent) of the Bank s net coitents of $95.2 billion, although this share has declined fro 64 percent in FYOl. In FY6, IBRD net coitents shrank by about two percent, because of exits exceeding approvals, ostly in LCR whose net coitents shrank by $2.2 billion despite an increase of $1 billion in approvals. Net coitents in LCR and EAP are 64 percent and 59 percent, respectively, of the levels in FYO Copared with an average of $7.2 billion in annual IBRD investent lending during FY2-6, the $9.2 billion in FY6 was an iproveent that built upon, and sustained the expansion of alost 4 percent of lending achieved in FY5 (Figure 2.2A). Aong the Regions, the increase of $1.2 billion in LCR, ainly in Brazil and Argentina, was able to offset the decline in investent approvals in SAR and ECA. FIGURE 2.2A: INVESTMENT APPROVALS 12- c z 1- iz a- v) 9 6- C : 4- E l I +lbrd +IDA New IBRD lending coitents for Developent Policy Lending in FY6 were at $4.9 billion, close to the average for the last five years, and ostly concentrated in LCR and ECA, which together accounted for 9 percent of total approvals (Figure 2.2B). The IBRD Developent Policy Lending net coitents of $5.8 billion in FY6 are one third less than its level of $8.7 billion in FYO 1 (Statistical Appendix, Table 2.4), largely because of the shift toward single tranche operations.

15 Annual ReDort on Portfolio Perforance FY6 7 FIGURE 2.2B: DEVELOPMENT POLICY LENDING APPROVALS lbrd +IDA I 2.1 The higher level of IBRD investent lending achieved in the last two years is the cuulative result of several recent initiatives and their consolidation: scaling-up of the Bank s support for ore effective responses to the specialized needs of Middle-Incoe Countries through the MIC Action Plan (paras and 2.14); odernization and siplification of internal Bank processes to eet Borrowers needs in a ore tiely and flexible anner (para. 2.15); and the Infrastructure Action Plan to revitalize lending and help clients to address unet infrastructure investent needs and broader developent goals. Box 2.3 provides an exaple of how these initiatives have played out in practice to increase the relevance of Bank support and provided a stronger basis for increased investent lending. IDA AND TRUST FUND PORTFOLIOS IDA approvals at around $9.4 billion in FY6 were at a historic high, and represent a 1 percent increase fro FY5 (Statistical Appendix, Table 2.17). At the sae tie, the current IDA net coitents of $39.8 billion are seven percent larger than in FYO1. IDA net coitents in Africa recorded a 12 percent increase in FY6, and now account for 46 percent of total IDA net coitents copared with 38 percent in FYOl (Statistical Appendix, Table 2.1). The HDN sectors experienced a significant decline in FY6 in their IDA net coitents because exits exceeded approvals, but this was offset by increases in INF and ESSD net coitents. The increase in INF net coitents is due in part to an increase in new approvals resulting fro the ipleentation of the Infrastructure Action Plan. When viewed in ters of FY6 IDA approvals, Africa experienced a 24 percent increase over FY5, while approvals in South Asia declined by 11 percent. Together these two Regions accounted, respectively, for 5 percent and 27 percent of IDA approvals in FY6. Aong the Networks, ESSD approvals increased by 142 percent over FY5, while in the other Networks approvals either declined or reained approxiately unchanged. Three-fourths of IDA approvals were for investent lending and the reainder for DPLs, which accounted for about one quarter of the total during the past five years. Given the need for a longer-ter perspective to strengthen institutional capacity and policy fraeworks, AFR has increasingly used prograatic lending for both investent and developent policy support. Box 2.4 provides insights fro the recently copleted Quality of Supervision Assessent (QSA7) of operations for public sector anageent and civil service refor, on how a coordinated approach involving integration of staff skills, borrower ownership, and partnership with donors can help iprove IDA S ipact.

16 Annual Report on Portfolio Perforance FY6 8 BOX 2.3: IMPLEMENTING THE INFRASTRUCTURE ACTION PLAN SUPPORTING THE ENERGY COMMUNITY OF SOUTH EASTERN EUROPE (ECSEE) This $1 billion Adaptable Lending Progra to support the developent of the Energy Counity was approved by the Board in FY5, and $418 illion has been coitted to date. Bank financing is being provided on a regional basis to support seven countries; as well as Kosovo under a closely related TA project. It is tailored to the needs of individual countries to eet their coitents under the regional Treaty which forally established the Energy Counity. The first-phase loan to Roania under the progra was approved by the Board in January 25, while seven subsequent operations have since been approved by the Bank s Manageent. South Eastern Europe faces the need for very large addition to generation capacity and atching transission and distribution syste requireents, if severe power shortages and supply interruptions are to be avoided. Financing requireents are about $34 billion, calling for significant private sector participation. Through the Energy Counity, an EU-copatible regional arket is being developed, representing a uch larger and ore attractive destination for prospective investors. The Bank s support for analytical work has been a vital eleent in helping to focus on a least-cost basis across national boundaries. Through a Generation Investent Study, the Bank helped, in partnership with other donors, build institutional capacity for rational energy planning, develop databases, and proote a shared understanding by policyakers and energy planners. In addition to the AAA support, the Bank also facilitated the design and ipleentation through the choice of an APL that sets reachable, yet eaningful goals, any of which have been reached in ost countries, such as the signing and ratification of the Treaty, and having an electricity regulator and a transission operator established and operational. QAG panels reviewing the Quality-at-Entry of the APL progra and of the analytic work highlighted the following strong aspects for this cross-country initiative: synergistic links to the EU efforts in the energy sector; effective institutional arrangeents; responsiveness to the clients needs; and the introduction of an elaborate set of inforation interchange and coordination bodies. Panelists also noted that the APL has repositioned the Bank to lend in areas fro which it had previously withdrawn and contributed to an effective and tiely response to clients needs Operations financed by Trust Funds (GEFMontreal Protocol) and Special Financing operations, financed in part out of the Bank s net incoe, had net coitents in FY6 of about $2.3 billion, the sae level as in FY5 but about 42 percent ore than in FYO1. New coitents of about $.3 billion were approved with Trust Fund financing in FY6. Although not included in the portfolio, recipient-executed Trust Funds, including Multi-Donor Trust Funds for country specific and regional eergency operations are being increasingly set up by the Bank and other donors. TFO has sponsored the creation of a new product line for recipient-executed activities where the Bank has a fiduciary responsibility. A total of 16 large, country-specific Multi-Donor Trust Funds are currently being anaged by the Bank. These Funds have a total coitent of over $4 billion and a net fund balance in FY6 of over $2.2 billi~n.~ New contributions in FY6 to ajor progras such as the Afghanistan Reconstruction Trust Fund, Multi Donor Trust Fund for Indonesia Aceh and Niah, Multi-Donor Trust Funds for Sudan, Iraq Reconstruction Trust Fund, and the Trust Fund for East Tior, were about $879 illion, and disburseents about $544 illion. Given the growing volue See FY6 Trust Fund Portfolio Review, Moving to Accountability for Results, Noveber 1,26 (Table 1.4).

17 Annual ReDort on Portfolio Perforance FY6 9 of recipient-executed Trust Funds, including Multi-Donor Trust Funds, and reputational risks they pose for the Bank, it is recoended that they be recorded in the Bank s portfolio, and subjected to regular Bank processes and quality assurance echaniss for tracking and anaging the health of the portfolio. BOX 2.4: PROGRAMMATIC SUPPORT FOR LONG-TERM CHANGE CIVIL SERVICE REFORM IN TANZANIA The Tanzania Civil Service Refor Progra provides the evidence of ipleentation over several years of the prograatic approach in helping clients. By definition, the scope of the refors is broad, so as to address linkages between issues of incentives and policy change, odernization of systes and processes, and reinforceent of capacity. The challenge in design was to set a series of goals abitious enough over a reasonable tiefrae to effect tangible differences in accountability, perforance, and delivery of public services, while ensuring ownership of borrower ipleenting staff and local agencies. The QAG Panel that assessed quality of the Bank s supervision of this operation noted several areas of excellence. These provide insights into how soe of the Bank s changes in recent years through decentralization, support for prograatic rather than project lending, and partnership with clients and other donors have played out for results. In particular, the Panel noted that the cobination of staff skills in the field, of sector specialists and fiduciary staff, peritted attention to both policy refor and proble solving. Borrower ownership was thus consolidated by real-tie joint interventions of the client, along with other donors and the Bank in addressing issues or oving to the next stage of refor. Supervision is joint, considerable resources are leveraged through other donors, and the latter have delegated responsibility for follow-up on procureent and financial anageent to the Bank because of deonstrated credibility. According to the panel, the supervision effort was appropriately focused on the following key developent issues: (i) rationalizing public sector pay and linkage with perforance; (ii) getting an M&E syste launched after initial delays and failed efforts; and (iii) odernizing the payroll and HR anageent syste. The project s results to date show delay as against initial expectations, but the latter were clearly over-optiistic. Ipleentation was filly integrated into the country dialogue, taking into account acroeconoic and fiscal constraints. A ain conclusion of the project tea and the Panel is that the Bank needs to be ore realistic in the tie expected for a coprehensive progra of public service transforation and for building capacity at various levels. IMPLEMENTATION OF MIC AGENDA 2.13 The FY5 ARPP reported on the ipleentation of the MIC agenda. Since the MIC task force presented its recoendations four years ago, the Bank has continued to ake progress on iproving its responsiveness to clients deands. Exaples include the expanded enu of financing and risk anageent products, reducing non-financial costs of doing business with the Bank, broadening its freestanding delivery of knowledge services, and offering treasury anageent services on the basis of cost recovery. MICs are looking for ore custoized financial and advisory services fro the IBRD, although traditional bundled lending and knowledge anageent products reain iportant for any MICs. Box 2.5 presents an interesting exaple of a custoized Bankcountry partnership.

18 Annual Report on Portfolio Perforance FY6 1 Box 2.5: CUSTOMIZED COUNTRY PARTNERSHIP: THE CASE OF KAZAKHSTAN Kazakhstan is at the fi-ont end of a ajor oil boo and by 21 the World Bank had lost its place at the policy table, faced a sall and shrinking portfolio, and a supply-driven analytical work progra that was of poor quality. But there were good reasons for the Bank to stay engaged. Despite plentiful resources and rapid econoic growth, the quality of education and health services were under threat, and uch of the infrastructure out of date, expensive or of poor quality. To stay engaged, the Bank needed to work in partnership with the client, provide top-quality expertise, and iprove its internal processes. Relevant easures adopted by the region resulted in the following: Partnership. Agreeent was reached on a Country Partnership Strategy that has no end date, no project or AAA lists, but an annually negotiated business plan. Knowledge. This turned out to be a key driver of the iproved relationship. The Joint Econoic Research Progra (JERP) has driven the re-engageent. Unlike pay-for-service arrangeents, this engaged both sides for its funding, and ade both accountable for relevance and quality. Bank Processes. A Central Asia Operational Tea was established to process pipeline and portfolio better. It also engaged the Governent in a discussion on how it could speed up and iprove the Borrower part of the project cycle. The evidence shows a ajor turn-around. While the Bank delivered an average of $.6 illion for AAA per year between 2 and 23, the figure increased to $2.2 illion between 24 and 26. Siilarly, after a period of flat lending ($28 illion on average between 21 and 24), approvals subsequently increased to an annual average of about $1 illion. The average preparation tie for investent lending declined fro 29 onths during FY97-FY3, to 17 onths in the last three years Lending to MIC clients in FY6 was $16.7 billion, an increase of six percent over FY5 and 4 percent over FYOl, Extensive consultations with representatives fro MIC countries and developent partners were held in the course of preparing a new paper, Strengthening the World Bank s Engageent with IBRD Partner Countries. This culinated in an updated MIC agenda that calls for: Accelerating actions for better and ore flexible country-partnership strategies; Reducing the non-financial cost of doing business with the Bank by strealining internal Bank procedures, and supporting the use of country systes where those systes eet utually agreed and verifiable indicators; Siplifying loan pricing and preparing options to ensure copetitiveness of IBRD loans; Mainstreaing IBRD participation in originating and adinistering public-sector lending at the sub-national level; and Providing fee-based expert services, unbundled fro lending and on a larger scale, where the Bank has coparative advantage. While it is too early to project the likely ipact of the above actions on the portfolio, the Bank has coitted itself to strealine its processes in the above areas, and to report on progress at the next Annual Meeting.

19 Annual Report on Portfolio Perforance FY6 11 MODERNIZATION AND SIMPLIFICATION AGENDA 2.15 The FY5 ARPP also reported on the ipleentation of the Modernization and Siplification agenda. Siplified internal processes for siple and repeater operations have continued to ipact positively on the Bank s portfolio. The quality of these operations was reviewed by QEA7 and found to be satisfactory. During FY6, 58 Siple and Repeater operations were approved for an aount of $3.3 billion copared to 31 operations in FY5 for an aount of $2.3 billion. Preparation tie under this progra averaged less than 12 onths per operation, which is about 25 percent less than the average for investent operations, and at an average cost of about $25, copared to $38, for investent operations. In addition, since June 1, 25, a total of $1.1 billion in net coitents have been approved under the new Additional Financing policy for operations. Another encouraging sign of efficiency gains is the reduction in elapsed tie between project concept and Board approval for all investent operations fro 18 onths in FY3 to 15.5 onths in FY6. Given the growing volue of additional financing, the next assessent of Qualityat-Entry proposes to pay particular attention to these operations. REGIONS AND COUNTRIES 2.16 Regional Trends. Three regions (AFR, ECA, and MNA) experienced an increase this year in their net coitents, while the other three regions experienced a decline. Over the last five years, AFR s share of total net coitents grew to 2 percent fro 13 percent in FYOl (Table 2.2). While net coitents in MNA grew odestly over the past five years and reained steady in ECA and SAR, they declined sharply in EAP and LCR by 32 and 34 percent, respectively. Africa is the only region with substantially larger net coitents in FY6 than in FYOI, showing an increase of $4.1 billion. The decline in SAR net coitents in FY6 over FY5 was in ajor part due to lower than anticipated lending in India, ainly in the HNP sector. MNA s increase in net coitents in FY6 over FY5 was helped by a $5 illion Financial Sector Policy Loan to Egypt. An analysis of disburseents over the past five years shows that LCR increased resource transfers to client countries by nine percent in FY6 over FYO1, and by 48 percent over FY5, in ajor part due to doubling of disburseents for DPLs fro $1.7 billion in FY5 to $3.3 billion in FY6. LCR accounted for 28 percent of Bank-wide disburseents in FY6. Disburseents in AFR and SAR in FY6 were also higher by 74 percent and 65 percent over FYOl, but declined in EAP by 24 percent over the past five years.

20 Annual Report on Portfolio Perforance FY6 12 TABLE 2.2: PORTFOLIO DISTRIBUTION AND DISBURSEMENTS BY REGION (US$ BILLION) Region Coitents Disburseents FYOl FY5 FY6 FYOl FY5 FY6 AFR EAP ECA LCR MNA o SAR Ban k-wide Portfolio Concentration. The FY6 portfolio includes operations in 124 countries, with a heavy concentration in ten countries, which together account for about one half of net coitents; by coparison, half the coitents in FYOl were accounted for by just seven countriess6 The decline in the level of concentration is evidenced by the share in total net coitents of the seven countries that were both on the FYOl and FY6 list declining, respectively, fro 52 percent ($55.4 billion) to 43 percent ($41 billion). The largest decline in net coitents during this five-year period occurred in China ($6.7 billion), Mexico ($3.2 billion), Argentina ($3.1 billion), India ($2.2 billion), and Indonesia ($2 billion). On the other hand, during the sae period the cobined net coitents in Vietna, Bangladesh, and Ethiopia increased fro $6.7 billion to $8 billion. In coparison, this year about 7 of the sallest borrowers account for only five percent of net coitents. In ters of nuber of projects, however, there is uch less of a disparity between the group of ten largest borrowers and the group of 7 sallest borrowers, which account, respectively, for about 26 and 21 percent of the portfolio. These nubers illustrate the adaptability of the Bank lending progra to the diverse needs, interests and absorptive capacities of different borrowers Portfolio Trend by Country Grouping. The net coitents with the largest decline (41%) over the past five years concerns the IBRD Investent Grade (IG) grouping of countries (Table 2.3). The IG and IBRD Only net coitents, however, held steady in FY6 due to a large increase in lending over FY5, by alost 4 percent to IG countries and nine percent to IBRD Only countries, but this was offset by an increase in the volue of exits. China and India have the two largest single country portfolios. Siilar to IG country net coitents, China s net coitents have declined by 39 percent during the period FYO1-FY6, and by 11 percent in FY6. Although lending to China increased in FY6 by 37 percent to $1.5 billion, exits exceeded approvals. Declines in India s net coitents in FY6 are ainly due to lower lending by alost $1.5 billion and a large volue of exits. Probles in lending to India s health sector have now been resolved and there are encouraging signs for strong lending in FY7. The ten largest borrowers in FY6 were India, China, Turkey, Brazil, Vietna, Argentina, Mexico, Indonesia, Bangladesh, and Ethiopia, which had a cobined population of close to 3.4 billion or 62 percent of the total population of Low and Middle-Incoe Countries. The seven largest borrowing countries in FYO 1 were China, India, Mexico, Brazil, Argentina, Indonesia and Turkey.

21 Annual ReDort on Portfolio Perforance FY6 13 TABLE 2.3: PORTFOLIO BY CLIENT GROUPING (US$ BILLION) Coitent IBRD Investent Grade China IBRD Only (Others) India Blend IDA Only LICUS Multi-Countrv FYOl FY5 FY % Change FYOl -6 Ban k-wide Fragile states or LICUS countries represent a critical challenge for the Bank and ake up a significant segent of IDA S portfolio (Statistical Appendix, Table 2.8). Two regions, AFR and EAP account for two-thirds of the LICUS portfolio by nuber of projects and AFR accounts for about two-thirds of LICUS net coitents (Table 2.4). The increase in the portfolio size of the LICUS countries during the past five years is in ajor part due to high levels of lending to Afghanistan and Deocratic Republic of the Congo. TABLE 2.4: PORTFOLIO IN FRAGILE STATES (LICUS) BY REGION Region No. of Projects Portfolio Size (FY6) Net Coitents $M o/. EAP ECA LCR MNA SAR Ban k-wide 122 4,397 1 oo* * Figures do not tally due to rounding Net coitents for ulti-country or regional projects have increased fro an insignificant level in FYOl to $1.2 billion in FY6, with ost of the increase in the Africa Region. The ulticountry portfolio is ainly focused on regional infrastructure (e.g., power and gas grids), export prootion through trade facilitation, transport corridors and financial sector integration. Given the ipetus provided under IDA 14, and challenges of such ulti-country projects, it is recoended that the upcoing assessent of Quality-at-Entry pay particular attention to the quality of these operations. NETWORKS, SECTORS AND THEMES 2.21 The Networks with the largest portfolio reain INF, HDN and ESSD, and together they account for 87 percent of total net coitents (Table 2.5). The INF portfolio is the largest, with net coitents representing 46 percent of the total. The HDN Network has seen its portfolio continuing to decline. The decline of the PREM Network portfolio has to be seen in the context of

22 Annual ReDort on Portfolio Perforance FY6 14 increases in single tranche DPLs, which are approved and disbursed in the sae year, and, therefore, do not show up in the stock of the end-year portfolio. Despite increased lending in FY6, PREM s portfolio declined because exits exceeded approvals. Approvals in FY6 for PREM, PSDN and FSE have increased by $1.4 billion, $.8 billion and $.5 billion, respectively, over FY5, but approvals for HDN, ESSD and INF have declined. For the first tie in the past five years, new portfolio entries have been larger than portfolio exits resulting in a sall increase in the portfolio in ters of nuber of projects. Network TABLE 2.5: PORTFOLIO DISTRIBUTION BY NETWORK (US% BILLION) Net Coitents FYOl FY5 FY6 ESSD FSE HDN INF PREM PSDN Bank-wide The five largest sectors in the Bank s portfolio are Transportation; Public Adinistration, Law and Justice; Health and Other Social Services; Water and Sanitation; and Energy and Mining, together accounting for 72 percent of total net coitents (Table 2.6). Transportation has reained the largest sector in the Bank s portfolio, with net coitents at about $2 billion in FY6 and FYOl. The Energy and Mining sector shows the largest variation aong all sectors, with a decline in net coitents fro $14.2 billion in FYOl to $1.1 billion in FY6, with ost of the decline occurring in electric power. In this context, recent initiatives (see Box 2.3) should help position the Bank strategically for greater relevance to eeting clients needs for copetitive and econoic electric power supply. Net coitents for all other sectors have either declined significantly or reained only slightly below the levels in FYOl (Statistical Appendix, Table 2.7) In ters of thees that typically cut across sectoral boundaries, the current portfolio for Financial and Private Sector Developent is the largest at 18 percent of total coitents, slightly below the level in FYOl (Table 2.6). The share of the portfolio for Huan Developent, Public Sector Governance, and Trade and Integration has grown during the period FYO1-6, while the share of Environent and Natural Resource Manageent has experienced the largest decline fro 16 percent in FYOl to 12 percent in FY6. It is worth noting that because the statistics collected and reported in the SAP are based on operations apped to sectors, it is difficult to track and assess cross-cutting thees such as gender because there are currently no operations apped to gender. A related issue is the frequent failure by TTLs to select gender as a thee even when the operation ay have gender iplications or coponents.

23 Annual Report on Portfolio Perforance FY6 15 TABLE 2.6: PORTFOLIO BY SECTOR OF FOCUS AND THEME (Yo SHARE IN COMMITMENTS) Sectorhee FYOI FY6 Sector Agriculture, fishing, and forestry 9 9 Education 9 9 Energy and ining Finance 6 5 Health and other social services Industry and trade 5 5 Inforation and counications 1 1 Public Adinistration, Law, and Justice Transportation Water, sanitation and flood protection 1 11 Total* 1 1 Thee Econoic anageent Environent and natural resources anageent Financial and private sector developent Huan developent Public sector governance Rule of law Rural developent Social devlg ender/i ncl us ion Social protection and risk anageent Trade and integration Urban developent Total* 1 1 * Figures do not tally due to rounding Net coitents for the Financial and Private Sector Developent (FSE and PSDN) increased fro $5.5 billion in FY5 to $6.8 billion or seven percent of the total net coitents in FY6 (Statistical Appendix, Table 2.3). However, since this thee is frequently included as a coponent or objective in ulti-sectoral operations, its share of total net coitents at 18 percent is uch higher. A QAG review of copliance with the Bank s Operational Policy 8.3 for Financial Sector Operations anaged by non-fse units has raised several copliance issues. Additional reviews were carried out to assess the perforance of the following non-dedicated coponents (Le., the relevant coponents are included in operations being anaged by another sector unit): Transport, Water Supply and Sanitation, and Inforation and Counication Technology. Findings fro these reviews raise concerns about the quality of Bank perforance in preparing and supervising nondedicated coponents in ulti-sector operations, as copared with single sector operations. These assessents recoend greater inputs fro sector specialists and allocating additional budgets for the supervision of these non-dedicated coponents.

24 Annual ReDort on Portfolio Perforance FY6 16 CONCLUSIONS AND RECOMMENDATIONS 2.25 The earlier declines in the portfolio have been stabilized, and both IBRD and IDA approvals and disburseents continued the upward trend of the past two years. Recoendations aied at better tracking and onitoring changes and trends in portfolio coposition include: Given the increasing volue of recipient-executed Trust Funds and reputational risks they pose for the Bank, it is recoended that they be recorded in the Bank s portfolio, and subjected to regular Bank processes and quality assurance echaniss for tracking and anaging the health of the portfolio; and In view of the growing volue of: (i) Additional Financing operations; (ii) ulticountry or regional projects; and (iii) ulti-sector operations, it is recoended that they should be given special attention in the upcoing assessent of Quality-at-Entry of operations approved in FY6 and FY7.

25 Annual Report on Portfolio Perforance FY PORTFOLIO PERFORMANCE 3.1 The iproving trend in developent outcoes of copleted projects financed by the Bank continued in FY6 with satisfactory outcoes now surpassing the agreed target of 8 percent. There are, however, substantial differences in perforance by the type of client, Region and Sector Board, suggesting opportunities for further iproveents. While country capacity is a key deterinant of success, Bank perforance on quality-at-entry and the quality of supervision are also iportant in ensuring that probles are identified early and issues addressed appropriately. 3.2 The recently copleted Quality of Supervision assessent suggests that while overall supervision perforance reains coendable, soe aspects, particularly onitoring and evaluation and reporting of portfolio risks continue to be probleatic. QSA panels found that over half of risky and proble projects are not being identified as such by staff and anagers. One ajor consequence of this is that portfolio perforance indicators (e.g., Projects-at-Risk, Realis Index, and Proactivity Index) derived fro staff ratings, have becoe less reliable for tracking portfolio perforance, underining the Bank s ability to adopt corrective easures in a tiely fashion. Based on analysis done as a part of this ARPP, odifications are proposed to the Realis Index to ake it a ore eaningful easure of the quality of portfolio reporting. The overarching issue in this respect is of anagerial accountabilities and incentives for the quality of portfolio reporting. Depending on the progress ade on this in the coing years, further systeic changes ay be necessary. EVOLUTION OF DEVELOPMENT OUTCOMES 3.3 The developent outcoes of operations exiting the Bank s portfolio rated satisfactory by IEG (Box 3.1) have continued the recovery BOX 3.1: RATING SCALE that started in the id-199s. In FY6, satisfactory developent outcoes are estiated to be 81 percent by nuber of projects, and 91 percent when weighted by disburseent. Because of significant yearto-year volatility, the developent outcoe trends are best analyzed using three-year oving averages (Figure 3.1). On that basis, ten years ago, one out of three operations exited the portfolio with unsatisfactory outcoes accounting for a quarter of the disburseents. Now, only one out of five operations, is unsatisfactory, accounting for about 12 percent of disburseents. As part of the haronization effort, IEG, OPCS and QAG have agreed to use the sae six-point scale for rating purposes. The first three ratings (Highly Satisfactory, Satisfactory and Moderately Satisfactory) indicate a satisfactory outcoe (Le,, above the line) while the last three ratings (Moderately Unsatisfactov, Unsatisfactory and Highly Unsatisfactory) indicate an unsatisfactory outcoe (Le., below the line). Unless specified otherwise, the ters satisfactory or unsatisfactory, when used in this chauter, follow the above definitions.

26 Annual ReDort on Portfolio Perforance FY6 18 FIGURE 3.1 : DEVELOPMENT OUTCOMES (FY8-6) Source: IEG except for FY6* which is a QAG projection. +3-Year Moving Avg. (by nuber of projects) + 3-Year Moving Avg. (weighted by disburseent) 3.4 Developent Outcoes by Region. A breakdown of satisfactory developent outcoes for FY3-6 by nuber of operations shows significant variations across Regions (Table 3.1). EAP, ECA, LCR and SAR have satisfactory outcoe ratings in the 8 percent plus range, while AFR and MNA s satisfactory outcoes are in the low 7 percent range. Satisfactory outcoes, weighted by disburseents, are slightly better for ost regions. EAP and ECA regions have disburseent weighted satisfactory developent outcoe ratings in the 85-9 percent range, and SAR, MNA are also in 8 percent plus range. AFR and LCR have disburseent weighted satisfactory outcoes slightly below the 8 percent plus level of other regions. LCR s low satisfactory outcoes rating at 78 percent, weighted by lending aounts, is ainly due to relatively poorer perforance of DPLs at 75 percent than for investent operations at 81 percent). TABLE 3.1: OUTCOMES BY REGION AND LENDING INSTRUMENT (FY3-6) DPL INVESTMENT ALL OPERATIONS Outcoe Outcoe Outcoe Region Outcoe by by Dollar Outcoe by by Dollar Outcoe by by Dollar Nuber Aount Nuber Aount Nuber Aount % Sat. % Sat. % Sat. % Sat. % Sat. % Sat. AFR EAP ECA LCR M NA SAR Bank-wide The low satisfactory outcoes in AFR reflect both country and Bank factors. AFR is hoe to the ten poorest countries receiving Bank assistance and these countries account for 28 percent of the region s total net coitents. Copleted projects in Fragile states (LICUS

27 Annual ReDort on Portfolio Perforance FY6 19 countries) in the Africa region (Table 3.2) have satisfactory outcoes of 48 percent. These countries have difficult environents, with weaknesses in governance, institutions and policies, all outside the Bank s control, which explain a good part of the lower outcoe ratings. However, lower Quality-at- Entry and Quality of Supervision in these countries, which are fully within the Bank s control, are also contributing factors. Satisfactory developent outcoes in AFR iproved to 7 percent in FY3-6 fro 64 percent in FY-2, and when weighted by disburseent, to 78 percent fro 65 percent. The low satisfactory developent outcoe in MNA at 72 percent during FY3-6, copared to 82 percent in FY-2, is siilarly due to the probles in Fragile states, which have satisfactory developent outcoes of only 43 percent. Year to year data on LICUS outcoes is also presented in Statistical Appendix, Table Fragile States or LICUS countries represent critical challenges for the Bank and in particular ake up a significant segent of the IDA portfolio (Table 3.2). There is large scope for iproveent in Quality-at-Entry and Quality of Supervision, both of which are aspects under the Bank s control. The Bank has introduced the LICUS initiative since 22 and an IEG review of the initiative was copleted in FY6.7 The review s ain conclusion was that, the initiative has increased Bank attention to LICUS, but it is too early to assess outcoes. However, the review identified organizational capacity as a ajor constraint to ipleentation in a LICUS context. Bank anageent is taking a nuber of actions to enhance the Bank s organizational response through a three-tier strategy focused on: (i) the increased field presence in Fragile states; (ii) the establishent of a stand-by capacity of experienced sector and operational staff to support Bank teas in eergency and crisis situations; and (iii) the provision of stronger institutional back up to eergency and fragile situations through additional guidance, cross-country sharing of lessons, and rapid response teas in central and regional units. Furtherore, the enhanced organizational response and a new OP/BP on Rapid Response to Eergencies will shortly be presented to the Board. These easures should iprove Bank perforance and also help iprove the quality of operations in Fragile states. TABLE 3.2: OUTCOMES IN FRAGILE STATES (LICUS) BY REGION Region No. of Projects IEG % Satisfactory (FYO3-6) AFR EAP ECA LCR MNA NA 43 SAR 3 1 Bank-wide * Figures do not tally due to rounding. 3.7 High satisfactory outcoes, however, are possible even in countries with low incoe and lower institutional capacities. Clients with especially high or low satisfactory outcoes are shown in Figure 3.2. The high perforing group includes clients fro ost Regions. Engaging Fragile States, IEG, 26.

28 Annual Report on Portfolio Perforance FY6 2 FIGURE 3.2: FY3-6 OUTCOMES FOR SOME SELECTED CLIENTS io so * 8 [ 7 6 OUTCOMES OREPITERMAN 85 hsallsfactory OUTCOMES LESS M AN 65% SAllSFACTORY 6 Bosnia- Colobia Tanzania, Arenia Kosovo, China Bazil West Bank and Bolivia Ghana Russian krzegovina. Tunisia Nicaraoua c3aza Federation Roania, Vietna 3.8 Developent Outcoes by Sector Boards. A detailed analysis of developent outcoes by ajor Sector Boards (Table 3.3) shows that their relative perforance varies significantly when easured based on the nuber of projects and when weighted by disburseent. The Transport sector continues to outperfor other sectors in satisfactory developent outcoes in ters of nuber of projects, while four sectors (Environent, Public Sector Governance, Health, Nutrition and Population, and Private Sector Developent) have satisfactory developent outcoes below the Bank s average of 78 percent. When weighted by disburseent, only three Sector Boards (HNP, Econoic Policy, and Environent) have satisfactory developent outcoes that are below the Bank s average of 83 percent. It should also be noted that Network affiliation does not see to have uch ipact on developent outcoes as both higher perforing and lower perforing sector boards are found in each Network; e.g. Rural and Environent in ESSD, and Education and HNP in HDN. These results underscore the need for ore cross-fertilization between Sector Boards in the sae Network. TABLE 3.3: OUTCOMES BY SECTOR BOARD (yo SATISFACTORY, FYO3-6) % SATISFACTORY % SATISFACTORY Sector Board (by no. of Projects) (Weighted by Disburseent) Transport Rural Financial Education Water & Sanitation Econoic Policy b Social Protection Urban Developent Energy, Mining & Teleco Environent Public Sector Governance Health, Nutrition, Population Private Sector Developent Bank-wide a/ b/ For Sector Boards with 15 or ore evaluations. Satisfactory developent outcoes for the Econoic Policy Sector on a weighted disburseent basis are low ainly because of one large DPL operation that exited in FY3. Excluding this one DPL, satisfactory outcoes, weighted by disburseent, for EP would have been 92 percent.

29 Annual Report on Portfolio Perforance FY With developent outcoes at 64 percent satisfactory by nuber of projects, the HNP sector faces perforance probles, particularly in low CPIA countries. Iproved perforance of HNP, including the HIV/AIDS portfolio, especially in the AFR region (Box 3.2), is critical for progress in achieving the MDGs. Project designs need to be better adapted to a country s ipleentation capacity. Also needed are proactive supervision efforts with a focus on the use of perforance indicators to assess progress on results, and candid and tiely recognition of, and propt actions to resolve, ipleentation probles. In Environent, excessive project coplexity, weak institutional capacity, inadequate ipleentation readiness, and failure to restructure probleatic projects are the ain probles. A new HNP strategy is at an advance stage of preparation. It discusses issues of poor sector perforance and proposes to sharpen Bank focus on results on the ground and on concentrating future Bank efforts on its coparative advantages, particularly in health syste strengthening, health financing and econoics. It also proposes to support governent leadership and international counity progras to achieve these results and to exercise greater selectivity in engaging with global partners. BOX 3.2: AFRICA REGION HIV/AIDS PORTFOLIO The Multi-Country HIV/AIDS Progra (MAP) was launched in 2 as a ulti-sectoral, eergency response to the epideic, focusing on advocacy, capacity building, and adopting exceptional easures to cobat the disease, especially through counity engageent. Twenty-nine country and four regional projects were approved with credits and grants totaling $1.32 billion, of which roughly two-thirds has been disbursed. A self-evaluation by the Region of the MAP Progra found that, in addition to increasing access and significant service delivery in prevention, care and treatent, the MAP Progra has been catalytic in bringing developent partners together to pursue haronized procureent, supply chain anageent procedures, M&E systes and the developent of unified national AIDS strategies. The final outcoe of these operations, however, is a cause for concern. According to IEG ratings, ore than half of the copleted HIV/AIDS projects in the Region have unsatisfactory outcoes. QSA7 Panelists noted the overly abitious Developent Objectives of these projects and under-estiation of difficulties during ipleentation. Other areas for iproveent included: M&E, procureent, and project anageent and coordination. Based on better epideiological knowledge and inforation, and lessons fro experience, the Region is addressing these shortcoings through: restructuring of the projects by revising their developent objectives, and strengthening of the results scorecard; heightened focus on capacity building, particularly with regard to fiduciary aspects and M&E; and providing extra support for project supervision and portfolio onitoring. The Region has also introduced an early warning syste to identify potential probles. Soe early success has been achieved in iproving the supervision of HIV/AIDs projects in Africa and the supervision of Guinea HIV/AIDs Project was judged to be Highly Satisfactory. This effort needs to be continued to iprove the results fro the rest of the portfolio. 3.1 QSA data suggests significant issed opportunities due to lack of candor in the Public Sector Governance sector. Low developent outcoes by nuber of projects in this sector are of particular concern because of the Bank s increased focus on iproved public financial anageent, public adinistration, legal and judicial refor, and governance. Main probles with copleted projects include: coplex project designs, weak institutional arrangeents, lack of correct appreciation of

30 Annual Report on Portfolio Perforance FY6 22 governent coitent to refor actions, inadequate attention to political econoy issues of proposed refors, inadequate risk anageent, and liited use of perforance indicators to assess progress Gender. Although the quality of supervision of gender issues shows a slight iproveent in QSA7 copared to the QSA6 level, it continues to be low. Panels noted that, while any Task Teas readily acknowledged the relevance of gender issues, there was a sense that they lacked support and guidance in dealing with these issues during supervision Developent Outcoes by Source of Funding. IDA operations had a satisfactory outcoe rate of 77 percent in FY6 copared to 72 percent in FY3 on a three-year oving average, while IBRD operations had a satisfactory outcoe rate of 85 percent in FY6 with a siilar iproving trend. Despite this overall iproveent, however, outcoes in LICUS countries reain generally low (para. 3.6). In contrast, according to IEG, MIC operations that exited the portfolio during FY3- FY6 have achieved satisfactory developent outcoes of 82 percent Developent Policy Lending Operations (DPLs). As shown in Table 3.1, DPLs have siilar disburseent weighted satisfactory outcoe levels (82%) to those of investent operations (83 percent). However, the perforance of investent operations by nubers is soewhat lower because of the ipact of saller countries, especially those with lower incoe Single Tranche DPLs. This category (para. 2.4) includes an increasing share of all DPLs and coprises operations that are approved and fully disbursed in the sae year. Satisfactory developent outcoes for single tranche DPLs were in the 9 percent plus range in FY6 on a threeyear oving average. While nine of these operations were unsatisfactory (four in AFR, three in LCR, and two in SAR), none of the rated the Developent Objectives (DO) in the ISRs, in part because these DPLs are approved on the strength of up-front actions. TRACKING OF DEVELOPMENT OUTCOMES 3.15 The Bank has been a pioneer in evaluating and reporting developent outcoes of projects and progras it supports. Currently, all projects at copletion are subject to Ipleentation Copletion Reports (ICRs) by staff with independent validation of their findings and lessons by the IEG through desk-based ICR Reviews (ICRRs). Additionally, IEG prepares ore in-depth Project Perforance Assessent Reports (PPARs) for about 25 percent of copleted projects (Box 3.3). PPAR ratings override IEG s earlier ICRR ratings, so that the portfolio-wide results reported by IEG are a cobination of those in the PPARs (for about a quarter) and the ICRRs (for the reainder). As explained in Box 3.3, IEG does not select projects for PPARs based on a rando or representative saple; accordingly, it is not possible to extrapolate the PPAR findings to the entire portfolio.

31 Annual Report on Portfolio Perforance FY6 23 BOX 3.3: EVOLUTION OF PPAR COVERAGE BY IEG Until the early 198s, IEG prepared Project Perforance Audits on all projects about one year after exit to analyze the extent to which project objectives had been attained and reasons for deviation. The ain factor for 1 percent coverage of copleted projects for independent audits was driven by the Board s concerns for accountability of Bank Manageent. In , the audit coverage was reduced to 5 percent of copleted projects because of the budgetary and staffing reality of IEG s growing portfolio and studies progra. The audit ratio was fkrther reduced to 4 percent in 1986 and again to 25 percent in 1997 to generate the resources needed to allow IEG to focus on evaluations at a Country, Sector and Theatic levels. The audit ratio reains at 25 percent today. The PPAR has evolved into an in-depth project evaluation based on field work, and is prepared by IEG on average within three years after project copletion. Projects for PPARs are selected along a nuber of criteria, including the potential to learn lessons fio innovative projects, usefulness as building blocks for IEG s Sector, Theatic, and Country Assistance Evaluations, and lack of inforation in the ICR or difference of opinion between IEG and the Region on ratings between the ICR and ICR Reviews Tracking of developent outcoes is iportant to iprove the effectiveness of the Bank s operational work, to strengthen institutional accountability, and to help reduce reputational risks to the Bank. Several iportant steps are already underway to strengthen the Bank s outcoe tracking syste including strengthening of Project-level M&E systes to provide better underpinning for evaluations and refineents of the ICWICRR process to resolve ethodological issues. In partnership with DEC, IEG is also considering detailed statistical analysis of the PPAR data to look for further insights into the historical trends. BANK S PERFORMANCE DURING PROJECT PREPARATION AND SUPERVISION 3.17 IEG evaluation data suggest that while country factors are the strongest predictors of project outcoes, the Bank s perforance is also a ajor contributory factor. Satisfactory Bank perforance during preparation and appraisal leads to better project design adapted to country situation. Iproved risk identification and itigation during ipleentation, and project restructuring to adjust to changing country circustances, also contribute to successful outcoes Quality-at-Entry. Since FY97, QAG has carried out seven assessents of Quality-at-Entry, and the results were reported in the last ARPP. The last Quality-at-Entry assessent of projects approved in FY4-5 (QEA7) shows that overall satisfactory quality is about 9 percenta8 A breakdown of the findings of QEA7, however, shows that 28 percent of projects are in the oderately satisfactory category, indicating issed opportunities during preparation for corrective actions to enhance developent ipa~t.~ Shortcoings in Quality-at-Entry can be addressed by paying ore attention to the following four ain factors that have been shown in IEG evaluations and QAG assessents to contribute to successful outcoes: * Projects in LICUS have lower Quality-at-Entry at 8 percent satisfactory. MIC operations, on the other hand, have higher Quality-at-Entry at 97 percent satisfactory. 9 Starting with QSA6 and QEA7, QAG shifted the assessent fio a four to a six-point scale of Highly Satisfactory (HS), Satisfactory (S), Moderately Satisfactory (MS), Moderately Unsatisfactory (MU), Unsatisfactory (U) and Highly Unsatisfactory (HU).

32 Annual Report on Portfolio Perforance FY6 24 Lower project coplexity that better atches the design with a country's institutional capacity; Coprehensive assessent of the risks and feedback into project design; Operationally relevant results fraework and baseline data at entry; and Greater project readiness for ipleentation at entry Quality of Supervision. The recently copleted Seventh Quality of Supervision (QSA7) assessent of the Bank's perforance during supervision in FY5-6 shows overall satisfactory quality at 95 percent copared to 9 percent in QSA6 (Table 3.4). The share of the portfolio in the oderately satisfactory category, however, has increased to 43 percent fro 25 percent in FY3-4. In addition, supervision quality in the satisfactory or better category has declined fro 65 percent in FY3-4 to 52 percent in FY5-6, across all quality diensions (Figures 3.3A and 3.3B). These results are a cause of concern and indicate issed opportunities as well as substantial roo for iproveent. At the regional level, ECA, AFR, MNA and SAR have iproved their perforance in QSA7, while EAP and LCR have shown a slight decline. TABLE 3.4: QUALITY OF PROJECT SUPERVISION QSA6 (FY3-4) and QSA7 (FY5-6) of which % Satisfactory % Moderately Satisfactory QSAG QSA7 QSAG QSA7 Region AFR EAP ECA LC R MNA SAR Network ESSD FSE HDN INF PREM PSDN Source of Funds IBRD IDA LICUS I' Ban k-wide ' QSA6 assessent was not stratified by LICUS group of countries.

33 Annual Report on Portfolio Perforance FY Quality of supervision in LICUS countries at 52 percent oderately satisfactory and 88 percent satisfactory is below the Bank's averages. Major issues are: (i) lack of focus on developent effectiveness, including efforts to build capacity and approach to building institutions; (ii) lack of anageent guidance on and responsiveness to supervision issues; and (iii) poor quality of project perforance ratings. LICUS operations also have very low ratings on sustainability. With extreely weak institutions in LICUS, ore focus on institution building and the intensity and quality of Bank supervision could have a ajor ipact on project outcoes. The Bank needs to assign ore experienced staff and anagers to supervise projects in these countries, as research has shown that supervision can have a high pay off in ters of iproving outcoes. FIGURE QUALITY OF SUPERVISION BY DIMENSION FIG. 3.3(A) lo QSA6 and QSA7 (YO S+) R1 FIG. 3.3(B)11 QSA7 (YO MS+ and S+) R1 R4 R2 : Focus on Developent Effectiveness : Supervision of FiduciarylSafeguard Aspec R3: Adequacy of Supervision Inputs and Processes R3 R4: Candor and Quality of ISR R3 QSM, % S+ QSA7, % S+ O%MS+ El%S A detailed analysis of QSA7 shows the following ain weaknesses: Failure to correct in a tiely anner quality-at-entry probles related to weaknesses in project design, poor quality of results fraework in the PAD, lack of readiness for ipleentation at approval, and inadequate risk assessent; Lack of tiely identification and assessent of threats to achieveent of developent outcoes; lo S+ only includes two of the three ratings that are above the line (Le., Highly Satisfactory and Satisfactory). MS+ includes the three ratings that are above the line (Le., Highly Satisfactory, Satisfactory and Moderately Satisfactory).

34 Annual Report on Portfolio Perforance FY6 26 Inadequate anageent attention and actions. Supervision efforts by, and the skill ix of task teas, are areas where ore effective guidance and support fro both country and sector anageent could have ade a difference; Inadequate budget resources in about a fifth of the saple; and Poor perforance reporting of QSA7 projects resulting in understateent of the riskiness of the portfolio as reported to anageent. The ISRs continue to suffer fro lack of candor and there are probles with the quality and tieliness of data to support perforance indicators. Copared with the ISRs, panelists identified twice as any proble projects and three ties as any risk flags in both FY5 and FY Quality of supervision can be iproved by ore attention to the following: Ensuring that needed technical expertise is present in supervision teas; Strengthen incentives and accountabilities to iprove the quality of supervision reporting; Address factors that ipede tiely anageent attention and actions on supervision issues; Address supervision skill ix issues by ensuring that decentralized staffs have adequate access to specialized and global skills; Provide guidance and training to task teas in the area of iproving the results fraework, including disseinating best practice exaples across regions; and Ensure that procureent and financial anageent specialists are better integrated with supervision teas. PORTFOLIO RISKS AND REALISM OF RATINGS 3.23 The effectiveness of the syste to easure portfolio perforance and status (Projects-at- Risk flag syste, Realis Index, and Proactivity Index) depends on the quality of the ISRs (Annex 2). However, if risks are under-reported in the ISRs, anageent s ability to focus tiely attention on probles is coproised. As reported in previous ARPPs, candor and realis of portfolio reporting are long standing probles. In response to proposals in previous ARPPs, soe actions have been initiated: In early 25, revisions to ISR syste placed greater ephasis on results and ade the ore issues and action oriented; Soe regions, particularly AFR, are strengthening supervision effort for proble projects, and this is encouraging ore candid reporting by TTLs and sector anagers (Box 3.4); and Intensified attention fro senior anagers, as in the case of Net Disconnect between IEG ratings and the ratings in last ISR, has provided increased incentive for anagerial attention. Nevertheless, the overall situation reains probleatic.

35 Annual Report on Portfolio Perforance FY Based on the FY6 ratings in the ISRs, only ten percent of the portfolio was classified as having serious probles and a further four percent acknowledged as having potential probles. Based on this, other related indicators (realis and proactivity) are currently being reported and used (Statistical Appendix, Tables 3.1 and 3.2). However, QAG s analysis shows that the following three factors raise questions about the reliability of the current portfolio risk syste: Excessive optiis in the ratings eans that any risky and probleatic projects are not being identified as such by staff and anagers, and, therefore, do not generally receive the resources and attention they require. Validation of the ISR ratings by the QSA7 Panels shows that 14 percent of the FY6 portfolio is at risk of not eeting its developent objectives (DOs) and an additional 11 percent of the portfolio is having ipleentation probles and require intensive attention (IP unsatisfactory), for a total of 25 percent of the portfolio facing serious issues; The Net Disconnect (the gap between the ratings for DO in the last ISR before closing and IEG s outcoes ratings at exit), which declined fro 15 percent in FY3 to seven percent in FY4-6, ay be sending a false signal of iproved candor in reporting (Figure 3.4). Analysis shows that the lower level is too often due to downgrading of the DO ratings in the last ISR before project closing (through so called death-bed conversions ). When easured based on ISR ratings one year prior to closing, the Net Disconnect during FY4-6 was about 13 percent. While such late downgrading of the DO ratings in the ISRs reduces the Net Disconnect (which is onitored by senior Manageent), it is ore iportant to recognize probles early on to perit tiely corrective actions; and In addition to serving as an early warning risk syste for Manageent on the health of the portfolio, the Projects-at-Risk rating is used in the forula for allocation of IDA resources. This ay distort incentives for candid reporting QSA reviews point to frequent failures in the ISRs to trigger discretionary risk flags. Validation of risk flags by QSA7 Panels shows that the ratings for M&E, Project Manageent, and Financial Manageent, which are good predictors of project developent outcoes, should have been rated unsatisfactory in 39, 28 and 16 percent of the FY6 ISRs, respectively, copared to the five-six percent range assigned by regional staff and anagers (Statistical Appendix, Table 3.25) A review of IEG s outcoes ratings shows that whenever an ISR assigns a Moderately Satisfactory (MS) rating to the Developent Objectives (DOs), there is a higher likelihood of the outcoe being rated Unsatisfactory by IEG (31% of the instances) than in instances where DOs in the ISR are rated Satisfactory (7%). The MS ratings are, therefore, useful to guide attention to areas where there is a need for ore focused attention to iprove project perforance A review of the ISRs by the ECA region carried out in id-fy6 found that 7 percent of the ISRs were satisfactory for realis of the key ratings. About 4 percent of the ISRs were satisfactory on the realis of the key ratings, and also on results fraework. While results orientation was satisfactory for 75 percent of the ISRs reviewed by ECA, it was concluded that there is roo for reducing the nuber of cases where the links between indicators and ratings were perceived as weak. In soe cases, the ECA review found excessive focus on ipleentation and disburseents to gauge progress instead of paying ore attention to progress towards eeting developent objectives. Therefore, the ECA review ephasized the need for using results as the ain source for justifying ratings, including cases where rating upgrades were undertaken.

36 Annual Report on Portfolio Perforance FY6 28 FIGURE 3.4: NET DISCONNECT BETWEEN 1% OUTCOMES AND ISR RATINGS DURING FY4-6 C 2 Q) n W4 FY5 WO4-6 1 lil %Net Disc. (IEG- DO(ISR)) %Net Disc. (IEGDO(ISR-1)) I 3.28 The ISR sign off syste by Sector Managers has not so far assured candid reporting of potential risks and there is a continuing perception that a Task Tea Leader of a proble project is hiself or herself a proble. The FY6 COSO Report noted that Sector Staff and Country Manageent Units feel that both foral and inforal incentives were priarily focused on getting projects to the Board, with quality, safeguards and supervision being secondary. Additionally, the COSO Report noted that despite the behavioral references in the annual staff perforance evaluation process to teawork, staff continue to believe that their perforance is being easured on individual rather than tea achieveent. Moreover, a proble project or a project that oves into the At-Risk category coes under Manageent scrutiny and the TTL is asked to fix the proble quickly, in any instances without adequate Manageent guidance and/or resources. Box 3.4 provides details of an innovative process introduced in FY6 by the Africa Region to address this concern One ajor consequence of the excessive optiis in the ISRs risk ratings is that portfolio perforance indicators derived fro the ISR database-projects-at-risk, the Realis Index that easures the degree of unreported probles, and the Proactivity Index that easures actions taken to resolve identified probles--have now becoe less reliable. They do not provide early warning of risks that threaten the achieveent of project developent objectives. This weakness coproises the ability of anagers to devote in a tiely anner resources and attention to the ore risky portion of the portfolio. l2 IBRD and IDA FY6 COSO Year-end Report (No. AC26-93), October 13,26 (paras ).

37 Annual ReDort on Portfolio Perforance FY6 29 BOX 3.4: STRENGTHENING SUPERVISION OF PROBLEM PROJECTS: THE AFRICA APPROACH In FY6, the RVP of the Afiica Region encouraged staff to be ore candid and responsive to ipleentation probles. The Region provided additional funding for intensive supervision of proble projects fro an escrow fund of $1.1 illion on a deand basis. Thirty-seven proble projects received funding and results have been proising. About one-half of these projects have been upgraded andor restructured. Lessons learned indicate the need to agree up-front on a strategy to address systeic issues, establish close links between finding and the proposed actions and expected results, and to coplete corrective actions during the fiscal year. The Region is continuing to provide additional finding for supervision of projects in difficulty in FY7. Task Teas have been encouraged to access the funds early in the Fiscal Year. Sector Units will prepare quarterly progress reports on the proposed actions. AFR s average supervision budget in FY6 for both proble ($136,) and non-proble ($15,) projects is the highest aong all regions. Average supervision budget Bank-wide in FY6 is $1 12, and $9, for proble and non-proble projects, respectively, showing less differentiation in supervision effort between the two categories. More odest increases in budgets for proble projects can also be found in SAR, EAP and ECA. Recently-approved project restructuring procedures will further iprove incentives, lower procedural constraints, and encourage ore flexibility during ipleentation. 3.3 Based on QSA findings and IEG s exit ratings, a ore realistic estiate of Projects-at-Risk is likely to be about 25 percent, significantly higher than the 14 percent level reported in FY6. This level is consistent with the reported unsatisfactory outcoes of 22 percent in FY3-6. The current Projects-at-Risk syste, therefore, needs recalibration so that it can provide a ore realistic estiate of the share of the portfolio that is at risk of not achieving the developent objectives Mindful of the increased distortions in the easureent of portfolio perforance, QAG coissioned a special review of the projects at-risk syste, and subsequently undertook further analysis to evaluate the ipact of changes in the ethodology for estiating portfolio riskiness and realis of project ratings.13 The review recognized that the existing Projects-at-Risk syste is not producing realistic results in the absence of adequate incentives for ore candid reporting and increased anagerial attention Revise the Realis Index. Further strengthening of efforts to inculcate greater candor in perforance ratings could be achieved by intensifying Senior Manageent attention to this issue; and iproving incentives for recognizing ipleentation risks and increasing candor in the ISR ratings. Based on the findings fro the latest review, the ARPP recoends revising the current Realis Index to ake it a ore eaningful easure of the quality of portfolio reporting, to siplify its calculation and to ake it ore robust. The revised Realis IndexI4 will link it directly to actual recent outcoes reported by IEG thereby aking it ore dependent on actual outcoes. It will be calculated as the ratio of the nuber of proble projects recognized by staff and anagers to the level of IEG s outcoes that are below the line in the ost recent three years (equivalent to about 1, evaluations), on a rolling basis. While there is rearkable persistence in IEG s ratings on a country and sector basis, it is recognized that in soe cases rapid iproveent in outcoes can Review of the Risk Flag Syste, by Marc Blanc, Nidhi Khattri, Joshua Wipey, and Irina Tratch, July 26; and Iproving Portfolio Manageent, Proposed Changes in the At-Risk Flag Syste, QAG, August 27, 26. Currently, the Realis Index is calculated as a ratio of actual proble projects to total nuber of projects at risk (su of actual proble projects and potential proble projects) (see Annex 2).

38 Annual Report on Portfolio Perforance FY6 3 occur. Accordingly, if regions provide sufficient justification, OPCS can agree to override historic perforance data and to introduce an alternative expected risk easure (e.g., by relying on the last year s IEG ratings rather than the three year average). Applying the proposed odification will result in an initial lowering of the end FY6 index fro 8 percent to 5 percent as shown in Table 3.5. EAP and MNA aong the Regions, and Environent and Urban Developent aong Sectors would experience the greatest change. In contrast, the change for LCR, Transport, and Social Protection is likely to be quite inial. The target for the Realis Index would be retained at the 7+ percent level. In order to iprove the index Bank-wide, soe 7 additional projects (or about 5% of the portfolio) would have to be classified as Proble Projects. Depending on the ipact of this change, other portfolio indicators ay also need to be revisited in the coing year. REGION AFR EAP ECA LCR MNA SAR OTH TABLE 3.5: COMPARISON OF CURRENT AND PROPOSED REALISM INDEX (AS OF JULY 1,26) Active Portfolio Latest 1, IEG Evaluations % Realis Index No. of Projects % Proble No. of % Unsat. Current Proposed (A) Projects (B) Evaluations (C) Outcoes (D) (E) [(B/D)VOO] NA NA NA NETWORK ESSD Environent Rural Sector Social Developent Sub Total FSE HDN Education HNP Social Protection Sub Total INF Energy and Mining 133 Global InforationlCo. Tech. 12 Transport 152 Urban Developent 77 Water Supply & Santn 99 Sub Total NA PREM Econoic Policy Poverty Reduction Public Sector Gov Sub Total NA NA PSDN TOTAL 1, ,

39 Annual Report on Portfolio Perforance FY6 31 CONCLUSIONS AND RECOMMENDATIONS 3.33 The conclusions and recoendations are: Quality at Entry and Supervision. Address the areas of weakness and issed opportunities during project appraisal and supervision; Realis Index. Modify the current Realis Index, basing it on recent IEG evaluations, to ake it ore robust and less susceptible to under reporting of risk. In case the regions feel that ajor changes in country conditions require exceptions, they can be agreed to following a review by OPCS; and Strengthening accountabilities of teas and anagers and exaining how to achieve greater realis in portfolio reporting.

40 Annual Report on Portfolio Perforance FY6 32 IV. ANALYTIC AND ADVISORY ACTIVITIES 4.1 Analytic and Advisory Activities (AAA) are a key coponent of the Bank s tool-kit for prooting econoic developent and reducing poverty aong its clients. They provide the basis for the Bank s policy dialogue with clients, the developent of country assistance strategies, and the design of effective lending progras. They are also iportant for building institutional capacity and prooting aid coordination and haronization aong the donor counity. During FY6, the Bank spent (both fro its own budget and TFs) a total of $222 illion on AAA, with alost 3 percent of the Regional country services budgets being devoted to these activities. 4.2 AAA expenditures have risen over the past five years resulting in a significant increase in outputs delivered to the clients, reflecting a conscious anageent decision to strengthen and deepen the AAA progra. Various assessents of AAA quality also suggest steady iproveent in their relevance and likely ipact with over 9 percent of the AAA work now rated Satisfactory. However, there is scope for greater likely ipact through ore attention to dialogue and disseination. Despite ajor efforts over the past few years in strengthening the planning, tracking and anaging of the AAA progra, these areas reain a cause for concern with potential for significant further gains in efficiency and effectiveness of resources used for AAA. This Chapter presents a stock taking of AAA activities in ters of expenditures and deliveries, and a review of activities by client and Networks/Sector Boards. The Chapter concludes with a discussion of key issues and related recoendations. TRENDS IN AAA EXPENDITURES AND DELIVERIES 4.3 Overall Expenditures and Deliveries. As shown in Table 4.1(A), overall AAA expenditures have grown fro $143 illion in FY2 to $222 illion in FY6--an increase of 55 percent in noinal ters and 31 percent in real ters. Seen in the context of a stable Bank budget overall for the past few years, the trend in AAA expenditures is indicative of the increasing iportance of knowledge activities in the Bank s assistance progras. During this period, expenditures and deliveries of AAA products experienced a sharp increase between FY2 and FY3 and a odest decline between FY5 and FY6. Two factors contributed to the initial increase. First, responding to perceived gaps in the availability of basic building blocks of analytical work, special priority was attached by Manageent to increasing the stock of ESW reports, especially diagnostic work. These products account for slightly ore than half the increase in deliveries and even a greater percentage of the increase in expenditures. Second, starting in FY3, Network anchor deliveries were forally brought under the AAA governance fraework, adding about 12 deliveries for that year.

41 Annual ReDort on Portfolio Perforance FY6 33 TABLE 4.1A: AAA PROGRAM BY COST ($M) (BANK-WIDE) FY2 FY3 FY4 FY5 FY6 A. Tasks in Progress at the Begining of the Year B. Total Expenses in FY C. Tasks Delivered in FY D. Tasks Dropped in FY a E. Expenses of Tasks Delivered in Previous FYs (1%) (131%) (151%) (169%) (17%) (1%) (117%) (132%) (14%) (155%) (1%) (14%) (152%) (18%) (177%) (1%) (96%) (212%) (251%) (327%) (1%) (18%) (144%) (141%) (194%) F. Tasks in Progress at the End of the Year (A+B-C-D-E) (1%) (115%) (129%) (13%) (141%) TABLE 4.1 B: AAA PROGRAM BY NO. OF TASKS (BANK-WIDE) FY2 FY3 FY4 FY5 FY6 A. Tasks in Progress at the Begining of the Year B. Tasks Initiated in FY C. Tasks Delivered in FY D. Tasks Dropped in FY a 787 1,65 1,256 1,222 1,87 (1%) (135%) (16%) (155%) (138%) 1,164 1,399 1,34 1,179 1,87 (1%) (12%) (115%) (11%) (93%) 725 1,65 1,37 1,45 98 (1%) (147%) (143%) (144%) (125%) (1%) (89%) (29%) (167%) (12%) E. Tasks in Progress at the End of the Year (A+B-C-D) 1,65 1,256 1,222 1,87 1,73 (1%) (118%) (115%) (12%) (11%) Dropped AAA tasks that were dropped in FY7 are treated as Dropped in the fiscal year in which the last expense took place. Data as of January 17, 27 represents partial cleanup of AAA progra. The figures in brackets denote trends in AAA using FY2=1%. FY2 is used as base year since this is the first year for which coparable data is available for such analysis. Costs include both BB and TF. 4.4 Three factors account for the decline in deliveries between FY5 and FY6. The ore iportant one (accounting for ore than half the decline) reflects the Regions drive to adopt a ore prograatic approach by consolidating tasks to optiize resources, iprove Manageent oversight, and prevent fragentation of nonlending activities. These efforts, in turn, help explain the ore odest decline in expenditures for delivered tasks. Reduction in the nuber of diagnostic reports (para. 4.12) is the second factor contributing to the decline. The third factor was tighter

42 Annual ReDort on Portfolio Perforance FY6 34 anageent of the task codes through the introduction of the TA governance fraework. These figures need to be treated with care, however, since as indicated in para. 4.24, soe of the changes are siply due to inappropriate coding16 or reporting of AAA activities. 4.5 Along with the increase in AAA expenditures, there has also been a odest rise in average unit cost, which at about $186, per delivered task is now about 1 percent higher in (real ters) than in FY2 (Statistical Appendix, Table 4.1). This increase ay reflect the added cost linked to the increasingly participatory nature of AAA work and to greater efforts at the consolidation of tasks noted above, at coordination with other partners, and ore attention to disseination. Three other noteworthy trends are the increase in post delivery expenditures (Le., those associated with tasks delivered in the previous year), the increase in the nuber of and expenditures for dropped tasks, and the leveling of the nuber of tasks in progress. These aspects are discussed below. 4.6 Post Delivery Expenditures. These expenditures fund various activities occurring after delivery of a task to the client (e.g., output finalization, translation of docuents, disseination of findings, and in soe instances, further field visits). Expenditures for disseination (for the purpose of this analysis, they are equated with those for post delivery) are currently $19 illion, or nearly double the FY2 level. This increased focus on disseination is a welcoe developent and response to earlier ARPP recoendation. However, the data should be interpreted with caution. Soe disseination activities occur prior to task delivery (i.e., they appear under the line ite for tasks delivered in the fiscal year); large expenditures have been entered in the syste several years after task client delivery, raising doubts as to whether they were disseination activities; and soe tasks ay have required further work for copletion, thus overstating the resources going into disseination. Given that post delivery expenditures are now a significant share of AAA expenditures, and the data reliability issues, better onitoring of these expenditures, as well as of their likely ipact and effectiveness is recoended. Future AAA assessents should include a review of post delivery expenditures. Disseination aspects are further discussed in paragraphs 4.1 8, 4.24 and Dropped Tasks. The Bank has generally encouraged the dropping or cancellation of activities (ESW, TA or lending) if they encounter insurountable difficulties which would prevent the fro achieving the desired results. As shown in Table 4.1(A), the cost of dropped AAA activities increased fro $7 illion in FY2 to $24 illion in FY6. Over the past three years, soe 8 tasks (about a quarter of all AAA tasks initiated) with an aggregate cost of about $6 illion have been reported as dropped. Disaggregation of the data on dropped tasks suggests the proble to be ore acute in AFR, for Global and Regional AAA, and for TA. Contrary to good anageent practices, any dropped tasks also see to carry a high price tag (average of $125, in FY6) suggesting that they are being dropped too late in the task cycle Starting in FY5, certain ESW and TA output types (e.g., Consultations/Country Dialogue and ConferencesIWorkshops) were reclassified into TA while other ESW and TA activities were reclassified into product lines outside the AAA ubrella. The word coding refers to the selection of a product line. Inappropriate coding or iscoding refers to the selection of an inappropriate product line for a particular activity (e.g., an ESW task is created and then used to fknd a project appraisal or supervision activity; a TA task is created to conduct an internal knowledge activity, etc.).

43 Annual Report on Portfolio Perforance FY Caution is needed in interpreting the above findings because of the data quality. It would see, however, that about one quarter of the costs associated with dropped tasks could be attributed to changes in the Bank s classification of activities as well as the reclassification of AAA activities into other product lines, which eans that the expenditures were not totally lost (though the conversion distorts the true cost of activities in the new product lines). Another 2 percent of the costs associated with dropped activities are due to factors such as changes in the CAS or client priorities. The balance or roughly half, which represents 5 percent of AAA expenditures, reflect probably inadequate Manageent oversight over the initiation, ipleentation and copletion of AAA activities. A priority for the coing year should, therefore, be better anageent of the AAA progra to bring down the volue and cost of dropped tasks. This also points to the need for regular onitoring and for future AAA assessents to review of dropped tasks. 4.9 Tasks in Progress. As shown in Table 4.1(B), the stock of tasks in progress at the end of the fiscal year, which had risen sharply in FY3, appears to be stabilizing. There were 1,73 AAA tasks in progress at the end of FY6 with total expenditures of about $2 illion. Between FY2 and FY6, there has been a odest increase in the nuber of tasks in progress, while expenditures increased by about $6 illion. Aong the Regions, AFR had the highest nuber of AAA tasks in progress (288 tasks), representing 26 percent of the total, and together with EAP these two regions accounted for about 46 percent of AAA tasks in progress. End FY6 work in progress can also be divided into Global and Regional AAA (256 tasks costing $81 illion) and Country AAA (817 tasks costing $119 illion). The relatively high cost already incurred for GRAAA tasks in progress (averaging $315, copared to $146, for Country AAA) is worrisoe, suggesting the need for further scrutiny. AAA DELIVERIES BY OUTPUT TYPE 4.1 During the past couple of years there have been several ajor changes in the delivery of AAA activities along output types. The ost noteworthy changes between FY5 and FY6 were the decline in the delivery of core diagnostic reports, other diagnostic reports, policy notes, and TA products. These changes are discussed in the following paragraphs.

44 Annual ReDort on Portfolio Perforance FY Delivery of Core Diagnostic Rep~rts,'~ which are a sub-set of ESW, declined fro 122 in FY4 to 81 in FY6. This was in line with the Bank's decision in 24 that once gaps in country coverage by core diagnostic products (including CPAR, CFAAA, PER, POR and CEMDPR) were eliinated, the frequency of such reports would be prograed on a country-by-country basis, depending on the types and level of the Bank engageent and partner country priorities and circustances, and the availability of relevant knowledge fro developent partners. Another factor contributing to this decline is the shift toward Integrative Fiduciary Assessents, which integrate in a single activity the work otherwise carried out under stand-alone PERs, CPARs, and CFAAs. This shift ay also have contributed to the sall increase in unit costs. TABLE 4.2: MAJOR AAA PRODUCTS (FY2-FY6) AAA Products Deliveries (#) Initiation to Copletion Costs (US$ Million) b' FY2 FY3 FY4 FY5 FY6 FY2 FY3 FY4 FY5 FY6 ESW Reports Core Diagnostic Reports Other Diagnostic Reports Advisory Reports a ESW Policy Noteslother Products Policy Note Other NA NA 18 1 a NA NA All ESW Products TA Output Types Client Docuent Review Institutional Developent Plan Knowledge-Sharing Foru ModelISurvey "HOW-TO" Guidance a All TA Products All AAA Products 724 1,65 1,37 1, a/ Delivery eans delivery to the client. b/ Initiation to Copletion costs include post-delivery costs. Costs include both BB and TF. c/ In FY5, ost Other ESW output types (e.g., ConferencedWorkshops and ConsultatiordCountry Dialogue) were reclassified as TA. 17 Core diagnostic reports include Poverty Assessents (PORs), CEMs/Developent Policy Reviews (DPRs), Public Expenditure Reviews (PERs), Country Procureent Assessent Reports (CPARs), Country Financial Accountability Assessents (CFAAs), and Integrative Fiduciary Assessents (PFPs).

45 Annual Reuort on Portfolio Perforance FY A recent review18 covering a ore restricted universe of diagnostic studies found that at the end of FY6: 54 percent of active IDA-eligible countrie~'~ had five up-to-date core diagnostic products, copared to only 13 percent at the end of FY3, with about 85 percent of active IDA-eligible countries having up-to-date PERs, CFAAs, and CPARs at the end of FY6; and There has been a growing tendency, particularly in AFR, to integrate PERs, CFAAs, and CPARs in one task. Looking forward, for the next several years it is unlikely that there will be ajor changes in the nuber of core diagnostic reports prepared by the Regions Other Diagnostic and Advisory Reports.2 These two ESW report type categories priarily seek to lay the foundation for sector dialogue and for Bank lending. There has been a slight decline in the nuber of Other Diagnostic Reports delivered in FY6 and a leveling off in the nuber of Advisory reports delivered. However, expenditures on these two report types have either reained constant or increased showing a continuation of the earlier trend towards ore effort on these custoized reports that respond to client deand and less towards core diagnostic reports. This is a welcoe developent that confirs that custoized diagnostic work is not being crowded out by core diagnostic work. This should also liit the risk of gaps in the Bank's sector and acroeconoic knowledge in individual countries Policy Notes. Within ESW, a noteworthy change in FY6 was the sharp decline in the nuber of Policy Notes delivered to the client, which after peaking in FY5, declined by about a third, while expenditures declined by nearly 5 percent. As a result, the share of Policy Notes in total AAA expenditures dropped fro 2 percent in FY5 to 11 percent in FY6. The average cost of Policy Notes has increased fro $88, in FY2 to $148, in FY6 and appears high given that they are eant to be quick-response, short, focused pieces. By output type (Statistical Appendix, Table 4.12), Policy Notes are aong the outputs showing the largest increase in preparation tie (four onths) copared to FY2. Short, effective Policy Notes of the type initially conceptualized are still being prepared but in soe instances there appears to be a clustering of related policy notes into a larger piece, which partly explains the decline in delivery nubers as well as the increase in average cost and preparation tie Technical Assistance. There was a odest increase in TA deliveries during the period FY2-FY6 with a sall increase starting in FY5 following the reclassification of ost Other ESW output types as TA. Nevertheless, Table 4.2 shows relative stability in TA delivery during the review '* l9 2 World Bank, IDA 14 Mid-Ter Review: ESW Progress, October 26. IDA-eligible countries include both IDA and Blend countries. Other Diagnostic reports and Advisory reports are ore custoized to client deand and provide acroeconoic and sector knowledge. Other Diagnostic reports include Accounting and Auditing Assessents, Corporate Governance Assessents, Country Environental Analysis, Country Gender Assessents and Education Sector Review to nae a few. Advisory reports cover topics such as Coodities, Debt and Creditworthiness, Foreign Trade, Law and Justice, Energy, Infkastructure etc. '

46 Annual ReDort on Portfolio Perforance FY6 38 period. The ost recent QAG assessents of the quality of Technical Assistance2 found its quality to be strong and often superior to that of ESW. In particular, the assessents noted that TA was a very valuable knowledge transfer tool that had been used quite effectively by the Bank. The clearer focus and articulation of results of TA was generally found instruental in aking TA effective in achieving its objectives. The assessents found that the strength of TA activities was their strategic relevance in support of the client s developent agenda and the quality of dialogue and disseination associated with the. However, as one assessent found that these tasks were affected by coding issues, several actions have been initiated to iprove perforance, including the launch of the TA governance fraework in FY5. AAA BY CLIENT 4.16 Country AAA. The increased focus on knowledge activities has eant a rise in the share of country services allocated to AAA (Le., the Country AAA intensity )22 fro 24 percent in FY2 to 29 percent in FY6 (Statistical Appendix, Table 4.13). As is to be expected, the intensity varies considerably aong Regions and countries. Over the five-year period, MNA has had the highest intensity (34%), in part due to the large Progra of Reibursable TA in the Gulf countries. At only 18 percent, the AAA intensity in LCR is the lowest reflecting stronger capacity for analytical work within the Region but also perhaps a tighter budget envelope for the LCR Region. The AAA intensity was lower for IDA countries (22%) than for the IBRD borrowers (28%) due to the greater perceived priority of lending in the forer. Consistent with the agreed LICUS initiative, there has been a rapid increase in AAA expenditures in the LICUS countries with the AAA intensity increasing fro 18 percent in FY2 to 3 percent in FY The AAA progra retained a high degree of concentration during the FY2-6 period, with 1 countries accounting for 21 percent of total deliveries and a quarter of all expenditure^.^^ Seven of these countries (India, China, Indonesia, Brazil, Vietna, Pakistan and Philippines) are also countries with large lending portfolios suggesting considerable synergies between the lending and AAA activities. The list also includes, however, two countries (Russia and Thailand) with little or no lending but where AAA is at the heart of the country partnership strategy. Saudi Arabia, with a filly reibursable TA progra, is the reaining country on the list Preliinary results fro Phase I1 of the Country AAA Assessent, currently underway, confir the Phase I findings reported in the last ARPP and suggest continuing strong perforance in ters of analytical quality as well as closer alignent with client developent fraeworks and CAS objectives. Although the Stage I1 Country AAA assessent shows soe early signs of progress in this area, disseination continues to need ore attention. It needs to be planned and funded as an integral part of task design and anageent. All too often the Bank is issing opportunities to integrate and disseinate AAA of potential interest to clients. This reduces the potential of the Bank to contribute to developent as an agent of change, particularly in the ore open political environents that now characterize any clients. More progress is also needed in iproving Assessent of the quality of Nonlending Technical Assistance delivered to the client in FY4 and the Country AAA assessent of Nonlending Technical Assistance delivered to the client during the period FY2-4. The country intensity is a easure of the relative effort devoted to Country AAA. It is obtained by dividing all AAA expenditures for a given country by all expenditures for country services for that country. Statistical Appendix, Tables 4.6 and 4.7.

47 Annual ReDort on Portfolio Perforance FY6 39 coherence of Country AAA progras and integrating the better with related work by other donors and by the clients theselves. The likely ipact at the individual task level is strong, particularly when the Bank facilitates and supports, rather than leads and doinates the policy-aking process. However, there is soe scope to further iprove likely ipact through greater anageent attention, particularly during the task preparation and disseination stages. Phase I1 Assessent covering a total of 17 country progras is expected to be copleted in April 27 and full results and recoendations should be available by end FY Assessing AAA ipact is difficult given attribution issues. As part of its AAA assessents QAG assesses the likely ipact of each task or country AAA progra. The Country AAA assessents identified several AAA progras, whose likely ipact was rated highly satisfactory. Fro the Bank s perspective the coon features of these successful AAA progras include: i) strong anagerial attention at-entry and during ipleentation; ii) continuity and quality of staff; iii) strong dialogue and participatory approach to proote governent ownership; and iv) adequate budgetary resources. Box 4.1 discusses several such AAA progras. In light of the sizeable Bank resources devoted to AAA, IEG has launched an evaluation that will assess the extent to which AAA has et its stated objectives, and derive findings on how to iprove the effectiveness with which AAA products eet their objectives. The evaluation will review the extent to which ESW/TA infors lending, policy, builds analytical capacity, infors/stiulates public debate and influences other donor activities. However, given the enorous difficulties related to attribution, IEG does not intend to evaluate AAA s ipact on the developent outcoes related to the Millenniu Developent goals. Box 4.1: Selected Country AAA Progras with High Likely Ipacts The likely ipact of the Vietna AAA progra was found extreely high in particular because it helped iprove Vietnaese understanding of the broad requireents of oving towards and anaging a arket econoy. The panel assessing the quality of this AAA progra also felt that it is likely to continue to play a significant role in the refor process. The panel noted that the Bank facilitated and supported, rather than led or doinated the policy aking process. The panel assessing the quality of Chile s AAA progra found that its likely ipact on the client was highly satisfactory. The panel noted that authorities have taken axiu advantage of the Bank s ESW work in all areas of the AAA progra to iprove policy ipleentation. As a result the progra has had a significant ipact in ters of likely revisions to incentive arrangeents for regional developent and SME developent, the establishent of innovative regies for new initiatives (social protection and rural infrastructure services) and iproveents in existing national systes for financial anageent, procureent and financial supervision. The Panel found that anagerial attention had been particularly ipressive both at entry and during ipleentation and that highly qualified staff and consultants had been selected. The El Salvador AAA progra s likely ipact was rated highly satisfactory based on actions already taken by the governent and the prospect for future actions. The panel felt that this progra has ade a substantial intellectual contribution to the governent s approach to refor and poverty reduction, as well as to the quality of the debate at the level of governent inistries and in civil society at large. Key Salvadorian counterparts openly acknowledged this contribution and they and foundations and think-tanks ephasized the need for continued engageent with the Bank. The Panel noted the strong involveent of the Country and PREM teas.

48 Annual Report on Portfolio Perforance FY The MNA Region has had Reibursable Technical Assistance (RTA) progras in five Gulf countries (Bahrain, Kuwait, Oan, Qatar, and UAE) since 22 and in the Kingdo of Saudi Arabia since Both progras are intended to be totally paid for and largely deand-driven; are not guided by country assistance or partnership strategies, and were anaged in each case by a dedicated unit outside the country-sector organization At the MNA Region s request, QAG undertook separate Quality Enhanceent Reviews (QERs) of these progras in FY6, adopting an approach siilar to Country AAA assessents. The ain findings of the QERs were that the Progras have been subject to ad hoc prograing, and corresponding unpredictability and uncertainty because of the absence of a longer-ter fraework that defines priorities for undertaking AAA--factors that have contributed to weak internal incentives. The QERs found a easure of abivalence on the part of Bank Manageent about the appropriate role for the Bank, the odality of its engageent, the evolution of that engageent over tie siilar to that of a paid consulting fir. The QERs also noted that the liited contribution of the Progras to capacity developent and the growing reservations by the clients about the Progras also contributed to this abivalence Against this backdrop, the QAG Panel outlined three options for the hture of the RTA progra--continue along the present lines, scale back the Progra, or recast the relationship with the recipient countries to that of a sustained, strategic partner and policy advisor (as with any other client country) versus a paid, ad-hoc consulting fir. Following discussions of options within the Bank and with clients, the Region is in the process of ipleenting the third option Regional AAA. While AAA has traditionally been directed to the country level, a growing share of AAA output is Regional in scope. Since FY2, the cost of Regional deliveries has tripled (fro $14 illion to $39 illion) copared to a 6 percent (noinal) increase in Country AAA deliveries. In FY6, Regional AAA deliveries aounted to close to one-fifth of the total AAA delivered to the clients in ters of nuber of tasks and close to a quarter of the total delivery cost Given the growing iportance of Regional AAA in the Bank s work, QAG assessed a saple of such tasks delivered during July 24 to Deceber 31, 25. The assessent found the quality of Regional AAA coparable to that of Country AAA. In particular, the likely ipact of these tasks was found to be high, above 9 percent. However, the assessent noted soe issed opportunities for greater likely ipact due to insufficient attention to dialogue and disseination aspects. In particular, panels found that disseination strategies at entry were often vague, iprecise, incoplete and that actual disseination arrangeents were often ad hoc and opportunistic, reflecting both a lack of resources and well thought out strategy. Also, opportunities for greater ipact were issed as a result of the insufficient engageent of key stakeholders. Panelists identified 13 good practice tasks, including the Shocks & Social Protection in Central Aerica ESW task (Box 4.2) which was rated highly satisfactory. The assessent found that quality was good in ECA, LCR, EAP but was lagging in AFR. Another area in need of iproveent is the quality of trust funded tasks where weaknesses were attributed to failure to follow the Bank s quality assurance echaniss. The assessent also found that iproper coding and reporting of tasks reains an issue, resulting in inflated nubers of Regional AAA tasks and playing a large role in the apparent significant increase in Regional AAA expenditures during the period FY2-6.

49 Annual ReDort on Portfolio Perforance FY6 41 BOX 4.2: SHOCKS AND SOCIAL PROTECTION IN CENTRAL AMERICA LESSONS FROM THE COFFEE CRISIS The Shocks and Social Protection study is part of an ongoing engageent between the Bank and its counterparts in Central Aerica on social protection, coprising both policy dialogue and operational support to governents to extend basic services to their poorest inhabitants and to protect the ost vulnerable fio the ipacts of shocks. This $26, Econoic and Sector work was undertaken in response to requests fio several Central Aerican governents for support in understanding the welfare ipacts of the coffee crisis--an unprecedented decline in world coffee prices between 1997/98 and 21/2--and its broader lessons for public policy. The quality of this task was rated Highly Satisfactory overall. Its strategic relevance was found particularly high given that its objectives were highly supportive of the Bank s advocacy role, of the policy dialogue and provided a strong underpinning to strategy developent. Quintessentially deand-driven, it was designed to go beyond a short-ter response to a particular crisis and seek to iprove the effectiveness of social safety nets in dealing with any kind of shock. The Panel also noted that the quality of the analysis was first rate, the findings persuasively presented, and the quality of the written output excellent. The Panel rated the task s likely ipact as Highly Satisfactory since substantial results had already been achieved less than six onths after copletion of the task. In Nicaragua, a pilot safety net progra ebodying the ain fdings of the work has already been initiated. In El Salvador, a conditional cash transfer progra had been launched as the first phase of developent of a safety net. The Panel also noted that prospects for achieving further results were good in Honduras and, even though not part of this task, in Panaa and possibly Colobia as well Global AAA. Since FY2, the cost of reported Global AAA deliveries has tripled (fro $2 illion to $6 illion) copared to a 6 percent (noinal) increase in the Country AAA. However, in FY6, Global AAA reained a sall share of total AAA QAG assessed a saple of such tasks delivered during July 24 to Deceber 3 1,25. The assessent found the quality of Global AAA inferior to that of Country AAA but recoended treating this finding with caution as it ay be caused by issues with the current classification of Global activities under the ESW and TA product lines. OPCS has since agreed to review the appropriateness of the classification of Global activities under the AAA line of products. The assessent found that soe of these global tasks had significant likely ipact including the Costs of Copliance with International Agro-Food Standards ES W task (Box 4.3). However, siilarly to regional AAA, the assessent found issed opportunities for greater likely ipact, due to insufficient attention to disseination aspects. The assessent found that quality was good in HDN but was lagging in INF. As noted for regional AAA (para. 4.24) above, the quality of trust funded tasks was also found to be weaker.

50 Annual ReDort on Portfolio Perforance FY6 42 I BOX 4.3: COSTS OF COMPLIANCE WITH INTERNATIONAL AGRO-FOOD STANDARDS - A GLOBAL PERSPECTIVE This global task was to better define the nature of the agro-food standard challenge facing developing countries in international arkets for high-value agricultural products in order to bring about an attitudinal and strategic shift in relation to agro-food standards and trade. Since uch of the conventional wisdo held that eerging standards were barriers to trade, and that developing countries had few options to respond, this ESW was to alter this paradig by instilling or strengthening the notions that developing countries do have roo for aneuver in designing policies and strategies to ensure copliance with the standards-and hence, continued international arket access and copetitiveness. The Panel concluded that this $32K task had been Highly Satisfactory overall. In particular, it noted that the strategic relevance of the task was very high because its objectives were highly consistent with the Bank s sector strategies in both rural developent and trade. Task tieliness was found very good in the context of the stalled Doha Round of trade negotiations and the increasing recognition by three of the existing world standards aking bodies that they did not have the econoic copetence needed to copleent their technical expertise. The quality of the written report was found outstanding, with an excellent suary and well presented recoendations. Actual disseination arrangeents were found exeplary, including an ipressive E-learning progra with MI, a dedicated Trust Fund for ainstreaing, a well-designed and coprehensive website and frequent presentations by the ain authors to diverse audiences. Finally, likely ipact was also rated Highly Satisfactory because the task has already had a substantial ipact on governents (who have requested Bank assistance in developing strategic visions for using standards to iprove national agro-food trade copetitiveness or have incorporated strategic analyses related to standards as coponents in export copetitiveness and trade studies), the wider developent counity, as well as the Bank. AAA BY NETWORK NETWORKS/SECTOR BOARDS 4.27 There were considerable differences in the nuber and cost of AAA deliveries by Networks/Sector Boards (Statistical Appendix, Table 4.2 ) and suarized below: Infrastructure. After peaking in FY3, deliveries in this Network experienced a decline though expenditures continued to grow and the cost per task this year ($216,) is ore than double the cost in FY2 ($15,). The rapid increase in expenditures of nearly three-fold between FY2 and FY6 was partly in response to the Bank s Infrastructure Initiative aied at reversing the decline in lending in the Infrastructure sectors. There are sharp year-to-year fluctuations in expenditures for AAA activities aong the sectors in this Network but when considered over the last five years, the Urban Sector received the largest share of resources (46%) followed by Energy (23%), WSS (13%), Transport Sectors (9%) and GIC (9%). The data need to be interpreted with care, however, as soe of the trends highlighted are possibly driven by the coding practices of INF s Global Progras and Partnerships (GPPs). Soe GPP products that had earlier been coded as Knowledge Products are now coded as AAA and City Alliance tends to code their tasks as Bank outputs whereas soe GPPs do not. PREM. Expenditures in this Network have increased gradually over the past five years but with the rate of increase being slower than in other Networks. As a result, although

51 Annual Report on Portfolio Perforance FY6 43 PREM still has the largest share of AAA deliveries, this percentage has declined fro 33 percent of the total in FY2 to 29 percent in FY6. PREM still leads in the delivery of AAA products though the Network s share declined slightly over the period. Econoic Policy accounts for nearly half the expenditures in the Network. Poverty Reduction, in line with the Bank s continued ephasis on poverty, saw an increase in expenditures of nearly 5 percent between FY2 and FY6. There was also a sharp increase in expenditures per task to $247,, largely reflecting the undertaking of ore substantive poverty assessents. ESSD. Both expenditures and deliveries declined fro the FY5 record level. Declines were especially pronounced in the Environent and Social Developent sectors, while the Rural Sector registered an increase for the fourth year in a row. Other Networks. The Financial and Private Sector Developent Networks experienced a sharp decline in the nuber of deliveries though these thees were also addressed in any AAA activities anaged by other Networks. As for Huan Developent, the slight increase in Education and the ore pronounced increase in Social Protection ore than offset the decline in Health, though it was noted that Health issues (e.g., HIV/AIDS) were frequently taken up in work conducted by other sectors. KEY ISSUES IN AAA MANAGEMENT 4.28 Zero Cost Deliveries. Bank data show that a nuber of tasks are reported every year as delivered to the client with a zero cost. There are close to 3 such tasks during the review period, of which 32 in FY6. A quick review of the 32 FY6 zero cost deliveries shows that they are overwhelingly located in the Africa Region (23 out of 32). All Activity Initiation Suaries (AIS) for these tasks were approved by anagers although ost did not include an estiated task budget. Several AIS indicate that work was indeed carried out and an output delivered to the client although no expenditure was recorded. These anoalies affect data reliability and can be directly traced to poor anagerial oversight and weak onitoring of AAA activities Tracking AAA Progras. Over the past few years, QAG assessents (ost recently of GRAAA) o f AAA Quality pointed to nuerous errors in task coding and reporting in the Bank s inforation syste. Despite ajor efforts and significant iproveents over the past few years, quality of the data reains a ajor constraint to effective anageent and oversight of the Bank AAA progras. Key probles in the anageent of the AAA inforation syste, which is based on inputs and updates provided by the Task Teas, include: Inadequate incentives for accurate reporting including end-of-the year pressures for inflating deliveries and reluctance to report unviable (dropped) tasks in a tiely fashion; Incoplete onitoring tools to provide anageent with eaningful suary inforation in a tiely fashion. While the current onitoring syste onitors AAA deliveries it does not focus on upstrea onitoring of AAA activities (Le,, onitoring entries of new tasks into Bank systes as well as onitoring the ipleentation of tasks in progress) and cannot identify anoalies in syste entries in a tiely fashion;

52 Annual Report on Portfolio Perforance FY6 44 Poor quality of task level data with reporting responsibilities often assigned to junior staff with liited failiarity of the underlying concepts and without adequate supervision by the TTLs; and While progress has been ade in defining the ESW and TA product lines, other product lines have not yet been fully defined. This leads to frequent iscoding of activities both within AAA and with other product lines. 4.3 The data deficiencies have eant a need for periodic clean up efforts to resolve probles accuulated over a period of tie, which are expensive in ters of staff tie and efforts and also ake it difficult to analyze trends over tie. Eliinating the need for such periodic clean ups calls for tighter oversight of the AAA process (e.g., work in progress, slippage, delays in delivering policy notes, coding, reporting and dropped projects) by Regional and Network anagers. There is also scope for OPCS, CSR, and ISG to work together with the operations staff to resolve the underlying probles for a ore sustainable systeic iproveent. RECOMMENDATIONS 4.31 Considering the short period between approval of the FY5 ARPP recoendations (strengthening anageent oversight, eliinating delays in AAA delivery, ensuring accurate coding and reporting and better disseination of results), and the preparation of the present report, the liited progress to-date is understandable. These recoendations, especially the first three, still reain valid. More specifically, given the issues identified in this ARPP, it is recoended that: Strengthen anagerial oversight and onitoring of the AAA progra. The RegionshJetworks should clearly define the preferred arrangeent for AAA oversight. Specifically, the responsibilities of the Chief Adinistrative Officer, Chief Econoist, and Quality Directors should be clearly defined; CSR, in cooperation with Regions/Network Anchors, other concerned units (including QAG as appropriate) and OPCS should identify a set of indicators that would enable effective onitoring and reporting on ESW and TA activities fro task initiation through task copletion; and Future AAA assessents to review dropped tasks as well as post delivery expenditures.

53 Annual ReDort on Portfolio Perforance FY6 45 V. RECOMMENDATIONS A. STATUS OF FY5 ARPP RECOMMENDATIONS RECOMMENDATION I. STRENGTHEP Iproving the Quality-at-Entry of operations in low CPIA countries. TABLE 5.1: IMPLEMENTATION STATUS STATUS NG LENDING AND PORTFOLIO MANAGEMENT Not Rated QEA8 (covering lending during FY6/7) to assess progress. Results to be reported in the next ARPP. Iproving Candor and Realis of portfolio perforance ratings. Iproving Developent Outcoes in lagging sectors (Environent, Health, Private Sector Developent and Public Sector). Identifying potential weaknesses in current Fiduciary Policies and propose reedial easures. Iproving Manageent Oversight of MA. Strengthening A M Disseination. Controlling Delays in A M Delivery. Moderately Unsatisfactory Coendable actions have been taken to put in place a syste for identifying high risk operations ex-ante. However, QSA findings indicate that candor in portfolio reporting reains a serious issue. Not Rated Too early to judge; preliinary results point to liited progress. Satisfactory A strategy paper for Strengthening Bank Group Engageent on Governance and Anticorruption was issued and its ipleentation is underway; Measures to strengthen the Bank s Public Financial Manageent work are in place; and The INT Departent introduced a Voluntary Disclosure Progra.,LYTIC AND ADVISORY ACTIVITIES Moderately Satisfactory Quality and relevance of AAA activities is high but concerns reain about effective onitoring and use of AAA resources. In particular, AAA onitoring and oversight between task initiation and delivery is weak and does not perit the identification of anoalies (work in progress, slippage, delays in delivery, coding, and reporting) before foral delivery. Moderately Satisfactory Attention to disseination has iproved and additional resources are being provided but the likely ipact of these efforts reains uncertain. Moderately Satisfactory While AAA delivery overall reains within acceptable liits, slippage (the difference between planned and actual delivery) continues to grow and has now reached about eight onths.

54 Annual Report on Portfolio Perforance FY6 46 Training staff on anaging for results. Not rated. To be reported on separately by the Results Secretariat. QSA7 results indicate about half the portfolio still lacks a sound results fraework. Ipleenting the Results Reporting Syste. 1 Monitoring of CAS ipleentation. OVERALL Moderately Satisfactory B. FY6 ARPP RECOMMENDATIONS As suarized above, there has been only odest progress in follow-up to the recoendations of the last ARPP, reflecting in part the relatively long lead ties needed for results in soe of the areas. The realis of portfolio risk ratings and the anageent of the AAA progras, in particular continue to be probleatic with significant scope for iproveent. Most recoendations ade last year still reain valid. The FY6 ARPP includes the following recoendations: Include recipient-executed Trust Funds in the Bank s portfolio, and subject the to regular Bank processes and quality assurance echaniss for tracking and anaging the health of the portfolio; Give special attention to Repeater and Additional Financing operations, ulti-country or regional projects and ulti-sector operations in the upcoing assessent of Qualityat-Entry ; Address the areas of weakness and issed opportunities during project appraisal and supervision; Modify the current realis index to ake it ore robust and less susceptible to underreporting of risk; Strengthen accountabilities of teas and anagers and exaine how to achieve greater realis in portfolio reporting; Strengthen anagerial oversight to iprove tracking and anageent of the AAA progra. The Regions/Networks should clearly define the preferred arrangeent for AAA oversight. Specifically, the responsibilities of the Chief Adinistrative Officer, Chief Econoist, and Quality Directors should be clearly defined; CSR, in cooperation with Regions/Network Anchors, other concerned units (including QAG as appropriate) and OPCS should identify a set of indicators that

55 Annual ReDort on Portfolio Perforance FY6 47 would enable effective onitoring and reporting on ESW and TA activities fro task initiation through task copletion; and Future AAA assessents to review dropped tasks as well as post-delivery expenditures.

56

57 Annual Report on Portfolio Perforance FY6 48 Annex 1 THE PORTFOLIO -AN OVERVIEW TABLE Fiscal Year 3pening Balance IBRD IDA TF 4pprovals in FY IBRD IDA TF Cancellations in FY IBRD IDA TF Exits IBRD IDA TF Errors in reconciliation b' PORTFOLIO: end-year balance Real Opening Balance IBRD IDA TF Approvals in FY IBRD' IDA TF Exits IBRD' IDA TF Errors in reconciliation End-Year Balance b' FYOl FY2 FY3 FY4 FY5 FY6 Net Coitents ($ M) 117,589 18,261 14,577 96,93 94,73 95,479 79,761 69,295 64,741 57,336 52,791 54,39 36,43 37, ,436 39,763 38,92 1,426 1,62 1,976 2,157 2,149 2,267 17,58 19,789 18,729 2,353 22,215 23,94 1,487 11,452 11,231 11,45 13,334 14,135 6,764 8,68 7,283 9,35 8,559 9, ,652 1,881 3,258 1,792 2,92 1,132 4,41 1,557 2,89 1,437 1, ,5 21,682 24,242 2,716 2,81 23,827 16,34 14,32 16,499 14,56 1,734 14,419 5,598 7,252 7,532 6,333 9,21 9, , ,261 14,577 96,93 94,73 95,479 95, , ,19 16,93 97,734 98,534 95,194 Nuber of Projects 1,593 1,561 1,543 1,516 1,466 1, ,561 1,543 1,516 1,466 1,451 1,468 a/ Cancellations represent partial reduction in coitents but do not include coitents for projects that exit in the fiscal year. They therefore reduce coitent aounts but not the b/ c/ d/ nuber of projects in the portfolio. End-year balance ay not equal opening balance plus approvals inus cancellations and exits due to synchronization errors between systes. FY6 prices, based on Manufacturers Unit Value (MW) Index. The Nuber of Projects in Business Warehouse for IBRD Source of Funds includes Blend operations.

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59 Annual Report on Portfolio Perforance FY6 49 PORTFOLIO DEFINITIONS BASIC PORTFOLIO DEFINITIONS AND DATA SOURCES Annex 2 1. The portfolio covered by the FY6 ARPP includes all IBRD, IDA, GEF, Montreal Protocol, and Special Financing operations approved through FY6 and 'excludes those that were copletely cancelled and/or closed during the fiscal year. All dollar figures are in noinal ters unless otherwise stated. IBRD/IDA coitent deflators varied by 17 percent between FYOl and FY6. Ters used in reference to the portfolio include: e Portfolio. All loans approved through FY6 excluding those which were closed or copletely cancelled prior to the end of the fiscal year. The portfolio includes GEF, IBRD, IDA, Montreal Protocol, and Special Financing operations. The portfolio only includes operations that are active at the end of the fiscal year; e Actual Proble Projects. Projects for which Ipleentation Progress is rated unsatisfactory and/or the Developent Objectives are rated as unsatisfactory; e Country Client Groupings. Countries are grouped according to the level of their incoe, size, risk and perforance for purposes of portfolio trend analysis. IBRD Investent Grade Countries include countries that have high credit ratings. There are presently 29 countries in this group. The LICUS country group (severe and core only) includes 26 countries with low CPIA ratings. China and India, with populations over one billion each, are in individual categories because of their size. The other three groups are IBRD Only, IDA Only, and Blend. They are categorized according to IDA/IBRD eligibility criteria. Country groupings are utually exclusive. Therefore, the IBRD Only group excludes Investent Grade countries and China. The Blend group excludes India, and the IDA only group excludes LICUS; e Coitents at Risk. Coitents at risk of not eeting their developent objectives. This includes coitents associated with both actual and potential proble projects; e Country Policy and Institutional Assessent (CPIA). The Country Policy and Institutional Assessent is an annual exercise in which country teas provide input to OPCS in order to assess the quality of each borrower's policies and institutions in the areas generally considered to be relevant to econoic growth and poverty reduction and effective aid use; e Deflator. Where so indicated noinal net coitents have been converted to real ters by using Manufacturers Unit Value (MUV) Index Deflator converted to 26 $ by using an index of 1.17 for FYO1, 1.19 for FY2, 1.1 for FY3, 1.3 for FY4, and 1.3 for FY5;

60 Annual ReDort on Portfolio Perforance FY6 5 Developent Objectives (DO). The rating of an operation s DO is based on the likelihood of attaining the developent objectives set in the Project Appraisal Docuent or as forally revised during Ipleentation. This rating ay be satisfactory or unsatisfactory and is the responsibility of the Task Tea Leader, who ust report on it, at least, annually in the Ipleentation Status and Results Report. The DO rating takes into account not only ipleentation progress, but also other factors such as inappropriate design, unforeseeable adverse econoic and financial developents, price fluctuations of project outputs, and changes in governent policy; Disburseent Ratio. The ratio of disburseents during the fiscal year to the undisbursed balance at the beginning of the fiscal year, investent operations only; Ipleentation Progress (IP). The IP rating is based on an overall judgent of ipleentation perforance in relation to the bencharks in the Project Appraisal Docuent or as forally revised during ipleentation. The rating is the responsibility of the Task Tea Leader, who reports it generally at least once a year in the ISR; Net Coitents. Total coitents net of cancellations for all projects in the portfolio; Net Disconnect. The difference between the percentage of projects rated as unsatisfactory by IEG and the percentage rated by the Regions in the final ISR as unsatisfactory for achieving their developent objectives; Portfolio Iproveent Progra (PIP) Country. A country designated for intensive portfolio onitoring and supervision. Norally, PIP countries are those with 5 percent plus of projects and/or 35 percent plus of coitents at risk, with ore than eight active projects and/or $25 illion in coitents. Once designated for intensive onitoring, graduation to noral status requires evidence of robust and sustainable iproveent; Portfolio Iproveent Progra (PIP) Project. A project with ore than $2 illion in coitent at risk; Potential Proble Projects. Projects which are rated satisfactory on IP and DO but have other risk factors historically associated with unsatisfactory outcoes. The criteria to consider projects as potential proble projects are described below in the Section on Measuring Portfolio Perforance; Proactivity Index The proportion of projects rated as actual proble projects 12 onths earlier that have been upgraded, restructured, suspended, closed, or partially (2% plus) or fully canceled; Projects-&Risk. Projects at risk of not eeting their developent objectives. Projects at risk is the su of actual proble projects and potential proble projects;

61 Annual ReDort on Portfolio Perforance FY6 51 Quality-at-Entry Assessent (QEA). A periodic exercise conducted by QAG to easure the Quality-at-Entry of projects shortly after they are approved by the Board. Quality-at-Entry is a prie deterinant of successhl developent outcoes, and deficiencies in design are difficult to correct during Ipleentation. The foundations of a project are laid during Preparation, before it enters the portfolio. QEA7 was the last Quality-at-Entry exercise and covered all projects approved by the Board in FY4-FY 5 ; Quality of Supervision Assessent (QSA). A periodic exercise conducted by QAG to easure the quality of supervision for projects, during a specific period. The Quality of Supervision Assessents are real tie reviews of overall supervision perforance for the previous two years. The assessent focuses on the quality of the supervision of Bank projects and not on the quality of the projects per se. The ost recent exercise, QSA7, covered FY5-FY6; and Realis Index The ratio of actual proble projects to total projects at risk. MEASURING PORTFOLIO PERFORMANCE 2. Experience shows that IP and DO ratings have tended to be over-optiistic when copared to the outcoes ratings that projects are given by IEG upon copletion. To address this deficiency, the FY96 ARPP introduced the concept of projects at risk as the basic easure of portfolio perforance. 3. Projects at risk include both actual and potential proble projects. Potential proble projects are those that, although rated as satisfactory for both IP and DO, are affected by factors likely to bring about an eventual unsatisfactory outcoe. These projects are identified by criteria ( flags ) that take into account not only various aspects of actual ipleentation experience, but also other relevant factors such as econoic anageent and past portfolio perforance in the country. Specifically, potential proble projects are identified as projects exhibiting three or ore of the following twelve risk flags for investent projects: e Legal Covenants. Any of the Critical Legal Covenants rated Not Coplied with in the last ISR; Safeguards. Ratings of MU, U or HU on any Applicable Safeguard Policy in the last ISR; Counterpart Funds. Counterpart Funding rated MU, U or HU in the last ISR (forerly the Financial Perforance Flag); Monitoring and Evaluation (M&E). Monitoring and Evaluation rated MU, U or HU in the last ISR; Financial Manageent. Financial Manageent rated MU, U or HU in the last ISR; Procureent. Procureent rated MU, U or HU in the last ISR;

62 Annual ReDort on Portfolio Perforance FY6 52 Project Manageent. Project Manageent rated MU, U or HU in the last ISR; Long-Ter Risk. Project with IP or DO rated MU, U or HU for any 24 onths cuulative during the life of the project. This flag is reoved when the project has been rated MS, S, or HS for IP and DO for the previous 24 onths; Effectiveness Delay. Elapsed tie between Board approval and effectiveness of ore than nine onths for investent and ore than three onths for eergency operations. This flag is turned off three years after Board approval; Disburseent Delay. Disburseent delay of 24 onths or ore for investent and 6 onths or ore for eergency operations. Delay is calculated based on the initial or forally revised disburseent schedule for the project; Country Environent. Located in a country with weak econoic anageent (CPIA rating of less than 3. on a scale of 1 to 6). Once "flagged," the CPIA rating ust exceed 3.5 for the flag to be reoved. This flag also includes countries which are in a conflict or post-conflict environent; and Country Record. Located in a country with a net disconnect of 2 percent or ore, or where net coitents associated with unsatisfactory projects (as rated by IEG) represent ore than 4 percent of coitents for copleted projects over the previous five years. In cases where the saple of IEG evaluations is too sall, ICR data, data on ature projects, and experience of other donors is used to arrive at a robust conclusion. This flag also captures countries with less than Moderately Satisfactory Country Assistance Evaluation (CAE) ratings by IEG in previous five fiscal years. 4. For Developent Policy Lending operations, potential proble projects are identified as projects with two or ore of the following seven flags (at least one project specific): 8 Monitoring and Evaluation. Monitoring and Evaluation rated MU, U or HU in the last ISR; Project Manageent. Project Manageent rated MU, U or HU in the last ISR; Long-ter Risk. Project with IP or DO rated MU, U or HU for any 24 onths cuulative during the life of the project. This flag is reoved when the project has been rated MS, S or, HS for IP and DO for the previous 24 onths; Effectiveness Delay. Elapsed tie between Board approval and effectiveness of ore than six onths for policy-based lending. This flag is turned off three years after Board approval; Disburseent Delay. Disburseent delay of 6 onths or ore for policy-based lending. Delay is calculated based on the initial or forally revised disburseent schedule for the project;

63 Annual ReDort on Portfolio Perforance FY6 53 Country Environent. Located in a country with weak econoic anageent (CPIA rating of less than 3. on a scale of 1 to 6). Once flagged, the CPIA ust exceed 3.5 for the flag to be reoved. This flag also includes countries which are in a conflict or post-conflict environent; and Country Record. Located in a country with a net disconnect of 2 percent or ore, or where net coitents associated with unsatisfactory projects (as rated by IEG) represent ore than 4 percent of coitents for copleted projects over the previous five years. In cases where the saple of IEG evaluations is too sall, ICR data, data on ature projects and experience of other donors is used to arrive at a robust conclusion. This flag also captures countries with less than Moderately Satisfactory CAE ratings by IEG in previous five fiscal years. 5. The at-risk ratings provide a better picture of the current state of the portfolio than IPDO ratings taken in isolation, because they are ore coprehensive and provide an early warning of potential failures and their causes. 6. Golden Flag. The projects at risk concept, however, is not perfect. It has been noted that soe operations that get flagged as risky are subsequently evaluated as Satisfactory because risks have been addressed, and others that are evaluated as unsatisfactory were not captured by the syste. To correct for this, the Regions can override the at-risk rating with a thirteenth flag first introduced in FY97--the Golden Flag. In each of the fiscal years fro FY3-6, approxiately one percent of the portfolio had the golden flag. A Golden Flag for a project is turned off if the project becoes unsatisfactory for IP or DO, or the total nuber of at risk flags for that project goes below three for investent and below two for policy-based lending operations. If the project subsequently gets three or ore at-risk flags for investent and two or ore for policy-based lending operations, a new request and justification for a Golden Flag is required. DATA SOURCES 7. Data for the ARPP Report and Statistical Tables are taken fro the Bank s Business Warehouse. The ISR ratings used in the ARPP were frozen by ISG as of June 3, 26. Other data sources include the Loan Accounting Syste for data on disburseents and cancellations. 8. Blend operations include both IDA and IBRD. In the ARPP Statistical Tables, nuber of projects, portfolio status indicators, IEG outcoes and net disconnect for blend operations are included under IBRD. Coitent aounts, however, are included under IDA and IBRD, respectively. 9. All costs related to AAA in the ARPP Report and Statistical Tables include both Budget (BB) and Trust Fund (TF). 1. LICUS country category in the ARPP Report and Statistical Tables is based on the LICUS countries as of July 7,26 fro LICUS Web site. Bank ist of

64 Annual ReDort on Portfolio Perforance FY6 54 PORTFOLIO CLASSIFICATION 11. The portfolio is classified in the ARPP by region, networkhector board, sector, thee and lending in~truent.~~ 12. The Projects (No.) colun in the Statistical Appendix, Tables 3.11 to 3.18 includes only those projects that are rated by IEG. 24 These classifications are assigned by Task Tea Leaders during project preparation. While the classification by Regions is reliable, there are abiguities and overlaps in the classification by sectors and lending instruents, e.g., projects which belong to the Urban Developent sector board ay be isclassified by the task tea to other sector boards.

65

66 Annual ReDort on Portfolio Perforance FY6 56 COUNTRY CLIENT GROUPINGS Country Client Groupings BRD Investent Grade (IG) :HINA BRD Country Aruba Bahaas, The Barbados Botswana Bulgaria Chile Croatia ' Cyprus Czech Republic El Salvador Estonia Hungary Kazakhstan Korea, Republic of Latvia Lithuania Malaysia Mauritius Mexico Naibia Poland Roania Russian Federation Slovak Republic Slovenia South Africa Thailand Trinidad and Tobago Tunisia China Algeria Antigua and Barbuda Argentina Australia Austria Bahrain Belarus Belgiu Belize Brazil Brunei Darussala Canada Colobia Costa Rica Denark Doinican Republic Country Cltent Groupings 3RD (Continued) Country Ecuador Egypt Equatorial Guinea Fiji Finland France Gabon Gerany Greece Guateala Iceland Iran Iraq Ireland Israel Italy Jaaica Japan Jordan Kuwait Lebanon Libya Luxebourg Macedonia, FYR of Malta Marshall Islands Micronesia, Federated States of Morocco Netherlands New Zealand Norway Oan Palau Panaa Paraguay Peru Philippines Portugal Qatar San Marino Saudi Arabia Seychelles Singapore Spain St. Kitts and Nevis Surinae Swaziland Sweden

67

68 Annual ReDort on Portfolio Perforance FY6 58 FY7 PIP COUNTRIES AND PIP PROJECTS PIP COUNTRIES Annex 3 Region Country No. of Projects Net Coitent Projects Coitent Fyo6 Coitent at Risk ($ at Risk at Risk (%) Country ($ Million) Million) (%I AFR Chad I a Y AFR AFR AFR AFR AFR ECA ECA LCR Eritrea Guinea Malawi Niger Nigeria Ukraine Uzbekistan Argentina I,a43 1, , a3 a , a a a Y N Y Y Y Y Y Y LCR Bolivia N LCR Doinican Republic a Y MNA Lebanon Y MNA West Bank and Gaza a a N SAR Bangladesh 24 2, a N Total 16 1,918 4, Bank-wide Portfolio 1,468 95,194 11, % Share of PIP Countries PIP PROJECTS Region Country Project Nae Network Coitent at Risk FY6 PIP ($ Million) Project LCR Argentina AR Econoic Recovery Support SAL FSE 5 Y LCR Argentina AR National Highway Asset Manageent INF 2 Y LCR Mexico MX: 111 Basic Health Care Project HDN 35 Y SAR Bangladesh BD Private Sector Infrastructure Dev INF 199 Y SAR Bangladesh HNP Sector Progra HDN 3 N SAR India TN Roads INF 348 N SAR India Mubai Urban Transport Project INF 542 N SAR India India Tsunai ERC INF 465 N Total Bank-wide Portfolio 2,94 11, % Share of PIP Projects 26

69

70 ANNUAL REPORT ON PORTFOLIO PERFORMANCE Fiscal Year 26 February 13,27 (STATISTICAL APPENDIX) QUALITY ASSURANCE GROUP

71

72 PORTFOLIO SIZE AND COMPOSITION Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 2.8 Table 2.9 Table 2.1 Table 2.11 Table 2.12 Table 2.13 Table 2.14 Table 2.15 Table 2.16 Table 2.17 Table 2.18 Table 2.19 Table 2.2 Table 2.21 Table 2.22 Table 2.23 Portfolio Distribution by Region Portfolio Distribution by Region/Country Portfolio Distribution by NetworklSector Board Portfolio Distribution by Instruent Portfolio Distribution by Source of Funds Portfolio Distribution by Thee Portfolio Distribution by Sector Portfolio Distribution by Country Category Grouping Portfolio Concentration by Country (FY6) Approvals by Region Approvals by NetworklSector Board Approvals by Instruent Approvals by Thee Approvals by Sector Approvals by Country Category Grouping Entries and Exits by Region Entries and Exits by Source of Funds Entries and Exits by NetworWSector Board Entries and Exits by Instruent Entries and Exits by Thee Entries and Exits by Sector Entries and Exits by Country Category Grouping Nuber of Overage Projects by RegionlNetwork PORTFOLIO PERFORMANCE ~ Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 3.8 Table 3.9 Table 3.1 Table Table 3.12 Table 3.13 Table 3.14 Table 3.15 Table 3.16 Table 3.17 Table 3.18 Table 3.19 (a) Table 3.19 (b) Table 3.2 Table 3.21 Table 3.22 Portfolio Status Indicators by Region Portfolio Status Indicators by NetworklSector Board Portfolio Status Indicators by Sector Portfolio Status Indicators by Thee Portfolio Status Indicators by Instruent Portfolio Status Indicators by Source of Funds Portfolio Status Indicators and IEG Outcoes by Region for IDA Projects Portfolio Status Indicators by Country Category Grouping Portfolio Risk Status Ordered by Country (FY6) Perforance of Projects Exiting the Portfolio by Region Net Disconnect by RegionlCountry Net Disconnect by instruent Net Disconnect by Source of Funds Net Disconnect by RegionlExit Year Net Disconnect by NetworWExit Year Net Disconnect by TheelExit Year Net Disconnect by Sector/Exit Year Net Disconnect by Country Category GroupinglExit Year Changes in Outcoes Ratings between ICRR and PPAR by Exit Year (FY9-5) Suary of Changes in Outcoes Ratings between ICRR and PPAR Changes in Outcoes Ratings between ICRR and PPAR by Region (FY9-5) Changes in Outcoes Ratings between ICRR and PPAR by Network (FY9-5) Changes in Outcoes Ratings between ICRR and PPAR by Source of Funds (FY9-5)

73 PORTFOLIO PERFORMANCE (cont'd) Table 3.23 Table 3.24 Table 3.25 Table 3.26 Table 3.27 Table 3.28 Table 3.29 Table 3.3 Table 3.31 Table 3.32 Table 3.33 Table 3.34 Table 3.35 Table 3.36 Table 3.37 Table 3.38 Table 3.39 Net Changes in Outcoes Ratings between ICRR and PPAR by Elapsed Tie between ICRR and PPAR (FY9-5) Net Change in Outcoes Ratings between ICRR and PPAR by ICR Quality Portfolio Risk Factors Portfolio Risk Factors by Region Disburseent Ratio by Region and Country Category Grouping Cancellations by Region/Country Cancellations by NetworWSector Board Quality of Supervision by Region Quality of Supervision by Network Quality of Supervision by Country Category Grouping Quality of Supervision by Source of Funds Quality of Supervision by LlCUS and Non-LICUS Quality of Supervision by Non-Dedicated Multi-Sectors Quality of Transport, Water Supply and Sanitation and ICT in Multi-Sectoral Projects Trends in Quality of AAA Quality of AAA by Region Quality of AAA by Network AM Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 4.8 Table 4.9 Table 4.1 Table 4.11 Table 4.12 Table 4.13 Table AAA Deliveries and Costs by Region/Country AAA Deliveries and Costs by Network/Sector Board AAA Deliveries and Costs by Country Category Grouping AAA Deliveries (NO. OF TASKS) by Region and Network/Sector Board, FYO2-6 AAA Deliveries (US$ ') by Region and NetworklSector Board, FYO2-6 AAA Concentration: Top Ten Countries by Nuber of Deliveries, FYO2-6 AAA Concentration: Top Ten Countries by Cost of Deliveries, FYO2-6 AAA Deliveries and Costs by Output Type ESW Deliveries and Costs by Report Type AAA Size Variations by Cost RangelMajor Output Type Tieliness of AAA Reports by Region and by NetwoMSector Tieliness of AAA Deliveries by Output Type Country AAA Intensity by RegionlBorrower AAA Products by Major Sector and Thee

74 1 hi 9 a 1 hi c C O co L d - U I-

75 TABLE 2.2: PORTFOLIO DISTRIBUTION BY REGlONlCOUNTRY RegionlCountry Proiects (No.) Net Coitents (US$ Million) FYOI FY5 FY6 FYOI FY5 FY6 AFR Africa ,19 Angola Benin Burkina Faso ~ Burundi Caeroon Cape Verde Central African Republic Chad Cooros Congo, Deocratic Republic of 8 8 1,332 1,47 Congo, Republic of Cote d'lvoire Eritrea Ethiopia ,814 1,615 2,17 Gabon Gabia, The Ghana ,55 1,41 1,96 Guinea Guinea-Bissau Kenya Lesotho Liberia 1 3 Madagascar Malawi Mozabique Naibia I 2 n 7 12 Niger Nigeria ,511 1,843 Rwanda ~~ 276 ~ 295 ~ Sao Toe and Principe Seneaal I _ Sierra Leone South Africa Swaziland 1 29 Tanzania ,34 1,912 Toao Uganda ,223 1,64 1,134 Western Africa Zabia Zibabwe Sub Total ,536 16,65 18,569 5 of 8

76 TABLE 2.2: PORTFOLIO DISTRIBUTION BY REGlONlCOUNTRY RegionlCountry EAP Cabodia China East Asia and Pacific Indonesia Kiribati Korea, Rewblic of Lao People s Deocratic Republic Malaysia Mongolia Papua New Guinea Philippines Saoa Soloon Islands Thailand Tior-Leste Vanuatu Vietna Sub Total Proiects (No.) Net Coitents IUS$ Million) FYOI FY5 FY6 FYOI FY5 FY ,461 11,951 1,724 1 _ ,345 2,621 2, ,374 1,144 1,435 7 _ _. _ , ,557 3,539 3, ,769 2,193 19,453 ECA Albania Aral Sea Arenia Azerbaijan Belarus Bosnia-Herzegovina Bulgaria Central Asia Croatia Estonia 2 Europe and Central Asia Georgia Hungary Kazakhstan Kosovo Kyrgyz Republic Latvia I -. ithiiania Macedonia, forer Yugoslav Republic of Moldova Poland Roania Russian Federation Serbia and Montenegro ,414 1,244 1,184 1,113 1,424 1,486 3,854 1,977 1, n Slovak Republic 5 6 Slovenia 2 Tajikistan Turkey ,317 5,965 6,57 Turkenistan 2 45 Ukraine ,9 Uzbekistan Sub Total ,13 15,883 16,514 6 Of 8

77 LCR TABLE 2.2: PORTFOLIO DISTRIBUTION BY REGIONKOUNTRY RegionlCountry Proiects (No.) Net Coitents (US$ Million) FYOI FY5 FY6 FYOI FY5 FY6 Argentina ,635 4,624 3,492 Barbados Belize Bolivia Brazil ,582 5,23 4,49 Caribbean Central Aerica Chile Colobia ,37 1,375 1,359 Costa Rica Doinica 2 11 Doinican Republic Ecuador El Salvador Grenada Guateala Guyana Haiti Honduras Jaaica Latin Aerica Mexico ,912 2,841 2,73 Nicaragua OECS Countries Panaa Paraguay Peru St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines Trinidad and Tobago Uruguay Venezuela Sub Total ,197 18,991 16,628 MNA Algeria Djibouti Egypt, Arab Republic of ,88 1,85 1,795 Iran, Islaic Republic of ,355 1,355 Iraq Jordan Lebanon Morocco Red Sea and Gulf of Aden 1 6 Tunisia , West Bank and Gaza Yeen, Republic of Sub Total ,898 5,563 6,621 7 of 8

78 TABLE 2.2: PORTFOLIO DISTRIBUTION BY REGlONlCOUNTRY RegionlCountry Proiects (No.) Net Coitents (US$ Million) FYOI FY5 FY6 FYOI FY5 FY6 SAR Afghanistan Bangladesh ,367 2,326 2,52 Bhutan India ,458 12,778 11,269 Maldives Nepal Pakistan , ,853 Sri Lanka Sub Total ,735 18,22 17,376 OTH Sub Total Total 1,561 1,451 1,468 18,261 95,479 95,194 8 Of 8

79 8 6 o r F v) W W 6 r b s E r P i%.- LL z z c s- 1- o c o c o c ZC SC N C w c IC.- N- s c s E o In r x z o VI r W N r f.y W Y U U a C C C (5 U r

80 s O O h C r a r c O N U $ t C r N h a r 2 C o o c r n C O O C r n C r o c C c r o o c * a CI O N C v: a C O N - a a a O O N lr: a t - z IC C - z n r

81 TABLE 2.5: PORTFOLIO DISTRIBUTION BY SOURCE OF FUNDS Source of Funds Projects (No.) Net Coitents (US$ Billion) FYOl FY5 FY6 FYOl FY5 FY6 IBRD IDA GEF I 1.2 MONT SPF Total 1,561 1,451 1, GEF MONT SPF Global Environent Facility Montreal Protocol Special Fund 11 of8

82 TABLE 2.6: PORTFOLIO DISTRIBUTION BY THEME Thee Econoic anageent Macroeconoic anageent Sub Total Proiects (No.) Net Coitents (US$ Million) FYOI FY5 FY6 FYOI FY5 FY , ,161 1, Environent and natural resources anageent Environental policies and institutions Pollution anageent and environental health Water resource anageent Sub Total Financial and private sector developent Infrastructure services for private sector developent Other financial and private sector developent Regulation and copetition policy State enterpriselbank restructuring and privatization Huan developent Education for all Health syste perforance Sub Total Public sector governance Adinistrative and civil service refor Decentralization Sub Total Rule of law Law refor Sub Total ,581 1,557 1,535 5,96 4,343 4,15 3,743 3, 2,545 16,832 12,439 11,428 5,53 5,794 6,959 4,837 2,79 2,27 4,556 2,829 3,199 4,48 2,385 2,75 21,18 16,8 16,878 3,138 3,5 2,749 3,22 2,187 1,985 11,846 12,986 12, ,742 1,797 1,948 Rural developent Rural services and infrastructure Sub Total ,26 8,72 8, ,995 13,257 13,1 Social developentlgenderlinclusion Participation and civic engageent Sub Total Social protection and risk anageent Iproving labor arkets Sub Total Trade and integration Expon oeve opent and copet tiveness Sub Total Urban developent Access to urban services and housing Municipal governance and institution building Other urban developent Sub Total ,859 4,143 3,991 7,985 8,82 7,656 1,872 1,81 1,374 6,525 7,142 6,795 I,UlO I,LJJ 1,535 3,26 4,27 4,799 1,561 1,451 1,468 18,261 95, This table shows sub-thees where the no. of projects or coitents exceeds 2.5% of the portfolio, or the largest sub-thee if no sub-thee exceeds 2.5%. 2. The nuber of projects or coitents in a thee is the su of the individual fractional parts attributed to each thee within a project. 12 of 8

83 TABLE 2.7: PORTFOLIO DISTRIBUTION BY SECTOR Sector Projects (No.) FYOI FY5 FY6 Agriculture, fishing, and forestry General agriculture, fishing and forestry sector Irrigation and drainage Sub Total Coitents (US$ Million) FYOI FY5 FY6 2,733 2,193 2,21 3,783 3,775 3,63 9,781 8,588 8,645 Priary education ,6 3,397 3,61 Sub Total ,941 8,564 8,222 Energy and ining Power Sub Total Finance Banking Sub Total Health and other social services Health Other social services Sub Total Industry and trade General industry and trade sector Sub Total Inforation and counications Telecounications Sub Total Public Adinistration, Law, and Justice Central governent adinistration Sub-national governent adinistration Sub Total Transportation General transportation sector Roads and highways Sub Total ,419 6,442 6,924 14,246 9,1 1,8 2,489 1,838 1,567 6,26 4,79 4,374 9,461 7,319 6,128 4,481 5,628 5,547 13,943 12,947 11,675 1,864 1,55 1,15 5,231 4,679 4, , ,958 8,864 8,377 3,33 3,892 4,554 17,6 16,195 16,354 2,279 2,337 2,514 15, ,276 2,75 2,536 2,175 Water, sanitation and flood protection General water, sanitation and flood protection sector Sewerage Water supply Sub Total (Historic)Environent (Histor1c)Other environent 1 Sub Total 1 Total 1,561 1,451 1,468 18,261 95,479 95, This table shows sub-sectors where the no. of projects or coitents exceeds 2.5% of the portfolio. or the largest sub-sector exceeds 2.5%. 2. The nuber of projects or coitents in a sector is the su of the individual fractional parts attributed to each sector within a project. 13 of 8

84 ~~ ~ TABLE 2.8: PORTFOLIO DISTRIBUTION BY COUNTRY CATEGORY GROUPING ~~ Countrv Cateaorv GrouDina Total Projects (No.) FYOI FY5 FY6 IBRD Investent Grade China IBRD Onlv (Others) India Blend IDA Onlv Licus Multi-Country Total 1,561 1,451 1,468 ~~ Coitents (US$ Billion) IBRD Investent Grade China IBRD Onlv (Others) India Blend IDA Onlv Licus Mu I ti-cou n try Total of 8

85 TABLE 2.9: PORTFOLIO CONCENTRATION BY COUNTRY (FY6) Arranged by Countries with Largest Nuber of Projects Arranged by Countries with Largest Coitents Cuulative Coitents Cuulative % Projects Coitents Country Country Projects of (US$ Million) t:ij:::: (us$ Million) Coitents China 79 1,724 5 India 56 11, India 56 11,269 9 China 79 1, Brazil 53 4,49 13 Turkey 24 6,57 29 Vietna 39 3, Brazil 53 4,49 34 Argentina 29 3, Vietna 39 3, Indonesia 26 2, Argentina 29 3, Tanzania 26 1, Mexico 23 2,73 45 Turkey 24 6,57 23 Indonesia 26 2, Bangladesh 24 2,52 24 Bangladesh 24 2,52 49 Mexico 23 2,73 26 Ethiopia 22 2,17 52 Philippines 23 1, Russian Federation 22 1, Ethiopia 22 2,17 29 Tanzania 26 1, Russian Federation 22 1,951 3 Pakistan 19 1, Roania 22 1, Nigeria 2 1,843 6 Uganda 21 1, Egypt, Arab Republic of 16 1, Nigeria 2 1, Roania 22 1, Colobia 2 1, Philippines 23 1, Congo, Deocratic Africa 2 1,19 37 Republic of 8 1,47 66 Pakistan 19 1, Colobia 2 1, Georgia Iran, Islaic Republic of 9 1, Serbia and Montenegro Poland 1 1,184 7 Mozabique Uganda 21 1, Yeen, Republic of Ghana 17 1,96 72 Azerbaijan Africa 2 1,19 73 Honduras Ukraine 12 1,9 75 Arenia Madagascar Ghana 17 1,96 49 Afghanistan Afghanistan Mozabique Tunisia Tunisia Peru Morocco Bosnia-Herzegovina Sri Lanka Albania Yeen, Republic of Kyrgyz Republic Kazakhstan Egypt, Arab Republic of 16 1, Senegal Sri Lanka Burkina Faso Burkina Faso Kenya Senegal Croatia Croatia Azerbaijan Moldova Guateala Tajikistan Peru Madagascar Mali Morocco El Salvador Kenya Nepal Mali Honduras Nicaragua Nicaragua Lao People's Deocratic Republic UNguay Ukraine 12 1,9 69 Bosnia-Herzegovina Guateala Malawi Nepal Doinican Republic Cabodia Georgia Mongolia Ecuador Rwanda Niger Poland 1 1, Lebanon Kazakhstan Rwanda Malawi Serbia and Montenegro Macedonia, forer Yugoslav Republic of Iran, Islaic Republic of 9 1, Ecuador Niger Zabia Mauritania Zabia Jordan Mauritania Arenia Chad Burundi of 8

86 ~~ TABLE 2.9: PORTFOLIO CONCENTRATION BY COUNTRY (FY6) Arranged by Countries with Largest Nuber of Projects Cuulative Projects Coitents Country (US$ Million) :,ti :' Caeroon Chile Guinea Congo, Deocratic Republic of 8 1,47 81 El Salvador Uruauav.,, a Doinican Republic Jordan Benin Sierra Leone West Bank and Gaza Chad Burundi Eritrea Bulgaria Lesotho Algeria Tior-Leste Kosovo Lebanon Bolivia ~ Congo, Republic of Paraguay Slovak Republic Djibouti Uzbekistan Angola Jaaica.._ ti I 7 97 Gabia, The Guinea-Bissau Haiti 5 7n 93 Cape Verde St. Lucia Costa Rica Lithuania _ Bhutan South Africa East Asia and Pacific Central Aerica Guyana Grenada Saoa Panaa Papua New Guinea Maldives World ' atin Aerica I naiiana L 1 LY YU Rrlanic 7 71 CIR Hungary Gabon Venezuela Trinidad and Tobago Caribbean St. Vincent and the Grenadines Naibia Sao Toe and Pnncipe St. Kitts and Nevis OECS Countries Arranged by Countries with Largest Coitents Cuulative % ProJects Coitents Country of (us$ Million) coitents Bolivia Cabodia Albania Caeroon Eritrea Uzbekistan.~_... 5 ~ Iraq _ Benin R Kygyz Republic Chile Bulgaria Sierra Leone Guinea Moldova Lao People's Deocratic Republic Angola Tajikistan Mongolia Congo, Republic of Thailand _ 97 Costa Rica Macedonia, forer Yugoslav Republic of Lesotho Paraguay Jaaica Panaa Slovak Republic I ithiiania 4 RR 98 Algeria West Bank and Gaza Gabia, The Belarus Papua New Guinea Guinea-Bissau Djibouti Haiti Cape Verde Tior-Leste Bhutan Hungary Maldives Gabon South Africa East Asia and Pacific St. Lucia Central Aerica Girvana A 36 inn Venezuela Kosovo Worid Trinidad and Tobago Liberia Grenada Saoa A 77 inn Central Asia 'Malaysia Latin Aerica Tonga Barbados Caribbean Cooros of 8

87 TABLE 2.9: PORTFOLIO CONCENTRATION BY COUNTRY (FY6) Arranged by Countries with Largest Nuber of Projects Cuulative Coitents Arranged by Countries with Largest Coitents Cuulative % Projects Coitents Country of (us$ Million) Country (US$ Million) ~ ~ ~. ~ ~ ~ ' Liberia Central Asia Malaysia Barbados Cooros Mauritius Europe and Central Asia Soloon Islands Latvia 1 7 i no Kiribati 4 1 Central African Republic 1 Total I I coitents St. Vincent and the Grenadines Mauritius Naibia Sao Toe and Principe St. Kitts and Nevis OECS Countries Europe and Central Asia Kiribati 4 1 Soloon Islands Latvia Central African Republic 1 Total I 17 of 8

88 AFR FAD ECA LCR MNA SAR OTH Tntal Region TABLE 2.1: APPROVALS BY REGION Projects (No.) Coitent Aount (US$ Million) FYOZ FY3 FY4 FY5 FY6 FYOZ FY3 FY4 FY5 FY ,762 4,188 3,843 4, ,842 2,344 2,647 2,926 3, ,58 2,697 3,594 4,71 4, ,411 5,896 5,352 5,2 6, ,111 1,149 1,339 1, ,525 2,919 3,423 5,33 3, ,789 18,729 2,353 22,215 23,94 TABLE 2.11: APPROVALS BY NETWORWSECTOR BOARD Projects (No.) Network/Sector Board FYOZ FY3 FY4 FY5 ESSD FY6 Environent Rural Sector Social Developent a Sub Total FSE Financial Sector Sub Total HnN Education Health, Nutrition and Population Social Protection Sub Total INF Energy and Mining Global InforationICornunications TransDort Urban Developent 1" I" u L" I" Water Supply and Sanitation =' == Coitent Aount (US$ Million) FYOZ FY3 FY4 FY5 FY ,263 1,93 2,9 2,679 2, ,536 2,817 2,547 4,116 3,768 3,812 1,214 1,279 1,195 1,734 3,812 1,214 1,279 1,195 1,134 ~~ 1,228 2,158 1, , ,193 1,761 1,11 1, ,348 1,66 2, ,81 4,699 4,955 4,48 3,816 1, ,55 1,636 2, ,379 2,827 3,691 2,513 2, , ,748 2, ,15 1, ,48 5,519 6,594 8,532 8,396 PREM Econoic Policy Poverty Reduction Public Sector Governance Sub Total PSDN Private Sector Developent Sub Total n a A " IO 2,884 1,185 1,76 1,495 2, ,744 2,299 1,446 1,118 1,368 4,628 3,935 3,752 3,358 4, , , Total ,189 18,729 2,353 22,215 23,94 18 of 8

89 N ( * b (D t? z -w v) E 8-2 L o t (Y E 4 LL

90 co y. N

91

92 N 3 co cd z co \c N N

93 TABLE2.16: ENTRIES AND EXITS BY REGION Projects Approved (No.) Projects Exiting (No.) Approvals - Exits (No.) Region FY4 FY5 FY6 FY4 FY5 FY6 FYO4-6 AFR EAP ECA LCR MNA SAR OTH 1 1 Total Region AFR EAP ECA LCR MNA SAR n-ru Total Projects Approved (US$ Million) Projects Exiting (US$ Million) Approvals - Exits (US$ Million) FY4 FY5 NO6 FY4 FY5 FY6 FYO4-6 4,188 3,843 4,838 3,32 3,999 3,158 2,41 2,647 2,926 3,462 4,265 4,82 4,14-3,416 3,594 4,71 4,71 3,685 2,595 3,278 2,179 5,352 5,2 6,24 5,487 4,557 7,969-1,634 1,149 1,339 1, ,67 3,423 5,33 3,85 3,165 3,97 4, ,353 22,215 23,94 2,716 2,81 23,827 1,849 TABLE2.17: ENTRIES AND EXITS BY SOURCE OF FUNDS Source Projects Approved (No.) Projects Existing (No.) Approvals - Exits (No.) offunds FY4 FY5 FY6 FY4 FY5 NO6 FYO4-6 IBRD IDA TF Total Source Projects Approved (US$ Million) Projects Exiting (US$ Million) Approvals - Exits (US$ Million) offunds FY4 FY5 FY6 FY4 FY5 FY6 FYO4-6 IBRD 11,45 13,334 14,135 14,56 1,734 14, IDA 9,35 8,559 9,446 6,333 9,21 9,194 2,492 TF Total 2,353 22,215 23,94 2,716 2,81 23,827 1, of 8

94 P. P

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100 ~ TABLE 3.1: PORTFOLIO STATUS INDICATORS BY REGION Region AFR EAP ECA LCR M NA SAR OTH Total ,561 1,451 1,468 Net Coitents (US$ Billion) FYOI FY5 FY Region AFR EAP ECA LCR MNA SAR Actual Proble Projects (No.) FYOI FY5 FY ~ ~ Potential Proble Projects (No.) FYOI FY5 FY IS OTH Total Region Projects at Risk (No.) Coitents at Risk (US$ Billion) FYOI FY5 FY6 FYOI FY5 FY6 AFR EAP ECA LCR MNA I.4.3 SAR OTH... Total Region % at Risk Yo Coitents at Risk FYOI FY5 FY6 FYOI FY5 FY6 AFR EAP ECA LCR M NA SAR OTH Total Region % Realis Yo Proactivity FYOI FY5 FY6 FYOI FY5 FY6 AFR EAP ECA LCR MNA SAR OTH NA NA NA NA NA NA Total of 8

101 cow r a $? c cow u

102 C -? : r Q cy r l- co rc N O c1 C a, E O C 2 x.- v) L U C C J= a, I 2 - s 3

103 TABLE 3.5: PORTFOLIO STATUS INDICATORS BY INSTRUMENT % Projects at Risk FYOI FY5 FY6 Dev. Policy DPL NA 1 ECO NA NA PRC NA PSL 17 5 SAD SAL SubTotal % Coitents at Risk FYOI FY5 FY6 NA 4 NA NA NA % Realis % Proactivity FYOI FY5 FY6 FYOI FY5 FY6 NA NA 1 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 1 1 NA NA Investent APL ERL FIL LtL SIL SIM TAL SubTotal Total Investent Dev. Policy APL Adaptable Progra Loan DPL Developent Policy Lending ERL Eergency Recovery Loan ECO Expanded Cofinancing Operation FIL Financial Interediary Loan PRC Poverty Reduction Support Credit LIL Learning and Innovation Loan PSL Prograatic Structural Adjustent Loan SIL Specific Investent Loan SAD Sector Adjustent SIM Sectoral investent and Maintenance SAL Structural Adjustent Lending TAL Technical Assistance Loan TABLE 3.6: PORTFOLIO STATUS INDICATORS BY SOURCE OF FUNDS Source of % Projects at Risk YO Coitents at Risk % Realis % Proactivity Funds FYOI FY5 FY6 FYOI FY5 FY6 FYOI FY5 FY6 IBRD IDA % GEF MONT NA NA NA FYOI FY5 FY % NA NA NA 1 SPF % Total GEF MONT SPF Global Environent Facility Montreal Protocol Special Fund 33 of 8

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105 Z I F; s N N 3 F 3 r N N r- 2 r 3 - I- P rn * z 2 IC z z b N N (D N 2 TI.- n s 2 W I N (D 9 8 Y - in b z z 7 7 b N E N E I I I I $ n n E KJ I a z z 2 U c.- 8 I I IC N d E v) Lo IC z 7 N In N 4 z I z I C h r- 3 r- K N N IC aj ( r > 8 D E C s n rn

106 oc o c o c 7 7 s a z a z < z 4 z 3 3 c r (c (c s 3 f v) N % $1 co z z co (D b co z Y 1 'C v, r r x r W s r W OD t- W r In r u) W E H r- - a I- c v) W a 3 z s z t W r F f r.r U c) c n 2 rj E 8 z c z 4 z 3 3 * s f C 3 co 4 - In r W W r ; - n c I- v) a z I f C 3 c a, W + Q) Is) a (D co P b co

107 TABLE 3.8: PORTFOLIO STATUS INDICATORS BY COUNTRY CATEGORY GROUPING Country Category Grouping % at Risk FYOI FY5 FY6 IBRD Investent Grade China IBRD Only (Others) India Blend IDA Only Licus Multi-Country Total Country Category Grouping % Coitents at Risk FYOI FY5 FY6 IBRD Investent Grade China IBRD Only (Others) India Blend IDA Only Licus Multi-Country Total Country Category Grouping % Realis FYOI FYO5 FY6 IBRD Investent Grade China IBRD Only (Others) India Blend IDA Only Licus Multi-Country Total Country Category Grouping % Proactivity FYOI FY5 FY6 IBRD Investent Grade China IBRD Only (Others) India Blend IDA Only Licus Multi-Country 1 NA 67 Total of 8

108 TABLE 3.9: PORTFOLIO RISK STATUS ORDERED BY COUNTRY (FY6) - % Net Countnr Coitents Coitents at Risk (US$ Million) Bangladesh 38 2,52 Argentina 38 3,492 Ghana 29 7R 1,96 I nne Nigeria 27 1,843 Ukraine 26 LO 1.9 Tanzania 23 1,912 Congo, Deocratic Republic of 19 1,47 ~~ ~ ~ India 15 11,269 Mexico Russian Federation 13 1,951 Iran, Islaic Republic of 1 1,355 Uganda 8 1,134 Vietna 7 3,975 Phitiines Roania 5 1,486 Indonesia 5 2,344 Ethiooia -. -r China Brazil 1 4,49 Turkey 1 6,57 Africa Egypt, Arab Republic of 1 1,795 Pakistan 1,853 Colobia 1,359 Poland 1,184 Country % Projects No. of at Risk Projects Argentina Niaeria 4 2 Bangladesh Serbia and Montenegro Bosnia-Herzegovina Albania Ghana Peru Mozabique Tanzania Honduras India Georgia Russian Federation 9 22 Mexico 9 23 Vietna 8 39 Indonesia 8 26 Croatia 7 15 Senegal 7 15 Egypt, Arab Republic of 6 16 Sri Lanka 6 16 Brazil ~ 6 53 Yeen, Republic of 6 18 Africa 5 2 Uganda 5 21 Roania 5 22 Turkev 4 24 China 1 79 Colobia 2 Pakistan 19 Arenia 18 Azerbaijan 18 Kyrgyz Republic 17 Tunisia 17 Moldova 15 Note: Only countries representing 1% or ore of Bank coitents or projects are shown. 38 of 8

109 ( N.- v) C X W t: d l- b co N v- N 3 L Q, l- r a Y

110 TABLE 3.11: NET DISCONNECT BY REGIONKOUNTRY RegionlCountry AFR Africa Angola Benin Botswana Burkina Faso Burundi Caeroon Cape Verde Central African Chad Cooros Congo, Deocrat Congo, Republic Cote d'lvoire Djibouti Eastern Africa Equatorial Guin Eritrea Ethiopia Gabon Gabia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozabique Niger Nigeria Rwanda Sao Toe and Pr Senegal Seychelles Sierra Leone Soalia South Africa Sudan Swaziland Tanzania Togo Uganda Western Africa FY9-6 Projects % Unsat % Unsat % Net (No.) DO Outcoe Disc la 36 la 34 _. 3 _ a I a s 13 R " n " a A7 A7 n _ A a _ s A la a a , FYO3-6 Projects % Unsat % Unsat % Net (No.) DO Outcoe Disc n 14, NA NA NA R n z U U U A NA NA NA NA NA NA NA NA NA n IA la a An._ 4n.- n NA NA NA ti n n n n L rn JU rn 3U n U NA NA NA R I?,.- I?,.- n NA NA NA 2 NA NA NA 1 n n n a of 8

111 TABLE 3.11: NET DISCONNECT BY REGIONKOUNTRY RegionlCountry EAP Cabodia China Fiii, ',, Indonesia Korea, Republic Lao People's De Malaysia Mongolia Myanar Papua New Guine Philippines Saoa Soloon Islands Thailand Tior-Leste Tonga Vanuatu Vietna Sub Total FY Projects % Unsat % Unsat % Net (No.) DO Outcoe Disc a la I1 ~yn3- Projects %Unsat %Unsat %Net (No.) DO Outcoe Disc NA NA NA NA NA NA n NA NA NA 9 6 n R _. NA NA NA NA NA NA I1 ECA Albania Aral Sea Arenia Azerbaijan Belarus Bosnia-Herzegov Bulgaria Croatia Cyprus Czech Republic Estonia Georgia Hungary Kazakhstan Kosovo Kygyz Republic Latvia Lithuania Macedonia, for Motdova Poland Portugal Roania Russian Federat Serbia Slovak Republic Turkenistan Ukraine Uzbekistan Yugoslavia, for Sub Total 47 - in n n n a la a a a la la a n 13 n 13 n 71) in I n a NA NA NA 13 a FI - n I?.- I?.- NA NA NA NA NA NA 1 a n NA.... NA.... NA Q n I1 11 NA NA NA n n n la NA NA NA " 41 of 8

112 . TABLE 3.11: NET DISCONNECT BY REGlONlCOUNTRY FYQO-6 RegionlCountry Projects % Unsat % Unsat % Net (No.) DO Outcoe Disc LCR Argentina Bahaas, The Barbados FYM-6 Projects % Unsat % Unsat % Net (No.) DO Outcoe Disc If NA NA NA NA NA NA Belize Bolivia Brazil I9._ n n n I NA n NA n NA n Caribbean Central Aerica Chile Colobia Costa Rica Doinica Doinican Repub Ecuador El Salvador Grenada Guateala Guyana Haiti Honduras Jaaica - I U U U n n n n n n _ A Id A? A n n n 1 A n NA NA NA Mexico N caragua " n n n OECS Countr es L U U U Panaa Paraguay Peru St. Kitts and N St. Lucia St. Vincent and Trinidad and To Uruguay Venezuela Sub Total L U U n u 3 n n n 5 7?a A? IA M NA Algeria Djibouti Egypt, Arab Rep Iran, Islaic R 7 Id IA n NA NA NA Jordan Lebanon Morocco _ 12 - Oan 3 U U U NA NA NA Red Sea and Gul 1 n 1 n n n SAR Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan n n n n n n I.... n NA NA NA "q n "C "C Sri Lanka Sub Total Total 4, of 8

113 TABLE 3.12: NET DISCONNECT BY INSTRUMENT Instruent Dev. Policy DPL DRL PRC PSL RIL SAD SAL SSL Sub Total Investent APL ERL FII LI L SIL SIM TAL Sub Total Total Investent APL ERL FIL LIL SIL SIM TAL FY9-6 FYO3-6 Projects % Unsat Yo Unsat % Net Projects % Unsat YO Unsat % Net (NO.) DO Outcoe Disc (NO.) DO Outcoe Disc A n n - - 4L U I I " n n 2 " NA NA NA I n U n U n U iin R R , , , Dev. Policy Adaptable Progra Loan DPL Developent Policy Lending Eergency Recovery Loan DRL Debt and Debt Service Reduction Loan Financial Interediary Loan PRC Poverty Reduction Support Credit Learning and Innovation Loan PSL Prograatic Structural Adjustent Loan Specific Investent Loan RIL Rehabilitation Loan Sectoral Investent and Maintenance SAD Sector Adjustent Technical Assistance Loan SAL Structural Adjustent Lending SSL Special Structural Adjustent Lending TABLE3.13: NET DISCONNECT BY SOURCE OF FUNDS FY9-6 FYO3-6 Source of Projects % Unsat Projects % Unsat YO Unsat % Net Disc Funds % Net Disc (No.) DO Outcoe (No.) DO Outcoe IBRD 2, IDA 1, GEF MONT 8 2 SPF Total 4, GEF MONT SPF Global Environent Facility Montreal Protocol Special Fund 43 of 8

114

115 TABLE 3.15: NET DISCONNECT BY NETWORWEXIT YEAR FY3 FY4 FY5 NetworklExit Year Projects % Unrat % Unsat %Net Projects % Unrat % Unrat K Net (No.) DO Outcoe Disc (No.) DO Outcoe Dlrc ESSD Environent Rural Sector Social Developent Sub Total FSE Financiai Sector Sub Total unu Education Health, Nutrition and Population Social Protection Sub Total Projects % Unsat % Unrat %Net (No.) DO Outcoe Disc Gender and Developent Poverty Reduction Public Sector Governance Sub Total NA NA NA NA NA NA , 1 4 NA NA NA ",4 L, 82 I" PSDN Private Sector Developent Sub Total Total FY6 NetworklClosing Year Projects % Unrat % Unsat %Net (No.) DO Outcoe Disc ESSD Environent Rural Sector Social Developent Sub Total FSE Financial Sector Sub Total HDN Education Health, Nutrition and Population Social Protection Sub Total INF Energy and Mining Global Inforation/Counications Transport Urban Developent Water Supply and Sanitation Sub Total PREM Econoic Policy Gender and Developent Poverty Reduction Public Sector Governance Sub Total DE"" NA NA NA o a Total Projects % Unrat % Unsat %Net (No.) DO Outcoe DISC r"",. Private Sector Developent Sub Total Total of 8

116 c c ( c VI VI a c 7 h 2 IC n c (D -J v: U U 9 n 4 (c: (c: 8 C > L e % B 2 k C.- x W \ E c I-

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118 b N 7 b N N r co c co d In r (CI CY r r r 3 CY

119

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121 TABLE 3.23: NET CHANGES IN OUTCOMES RATINGS BETWEEN ICRR AND PPAR BY ELAPSED TIME BETWEEN ICRR AND PPAR (FY9-5) Elapsed Tie between ICRR and corresponding PPAR No. of IEG Evaluations No. of Net Changes % Net Change c=2 Year 'a >2 & e= 5 Years >5 Years Total a/ About 38 projects with PPAR evaluation date less than their corresponding ICRR evaluation date in the syste have been eliinated fro the above analysis. 51 of 8

122 3 3 3 Q) c cv N w 5 I- 4

123 TABLE 3.25: PORTFOLIO RISK FACTORS (As a Percentage of the Active Portfolio) Risk Factor FY5 FY6 Country Environent* 21 2 Country Record* Counterpart Funds 5 4 Effectiveness Delay* 7 7 Financial Manageent 4 5 Legal Covenants 7 6 Long Ter Risk* 4 4 Project Manageent* 6 6 Monitoring & Evaluation* 7 6 Procureent Probles 7 6 Safeauards 2 3 Slow Disbursing* Golden Flaa 1 * Risk-flags applicable to Developent Policy operations as well. 53 of 8

124 c o b b cv d-c c o r bic I-* cvd c o b za dr w ab C C cs r C C C G c a P s - v) v) c.-.i- E al a 1..- a c C a E - a > E c a a.- Q Q v) E L v) a c W L+ d

125 TABLE 3.27: DISBURSEMENT RATIO' BY REGION AND COUNTRY CATEGORY GROUPING (In Percent) Region FYO 1 FY5 FY6 AFR EAP ECA LCR MNA OTH SAR Total Country Category Grouping FYO 1 FY5 FY6 IBRD Investent Grade China IBRD Only (Others) India Blend IDA Only Licus Multi-Country Total ' Disburseent Ratio is the ratio between "IBRDADA Disburseents in the Fiscal Year" and "Opening Undisbursed Aount at the beginning of the Fiscal Year," and is restricted only to Investent projects. 55 of 8

126 TABLE 3.28: CANCELLATIONS BY REGlONlCOUNTRY (US$ Million, IBRDllDA and SPF Only) RegionlCountry FY2 FY3 FY4 FY5 FY6 AFR Cote d'lvoire Nigeria 8 41 Tanzania Zibabwe Sub Total EAP China Indonesia Sub Total ECA Kazakhstan Poland Russian Federation Turkey Sub Total 928 1, LCR Argentina Brazil Colobia Mexico Uruguay 5 76 Sub Total MNA Algeria Egypt, Arab Republic of Tunisia Sub Total SAR Bangladesh India Sub Total Total 2,573 3,928 2,377 2,53 1,45 Notes: 1. The table includes projects that are either partially or fully cancelled, while Annex 2 includes partial cancellations for projects that are either active or have exited the portfolio. 2. The table shows individual countries with cancellations exceeding 2.5% of the Bankwide total. 56 of 8

127 TABLE 3.29: CANCELLATIONS BY NETWORWSECTOR BOARD (US$ Million, IBRD/IDA and SPF Only) NetworkEector Board FY2 FY3 FY4 FYo5 FY6 Environent Rural Sector Sub Total , FSE Financial Sector 489 1, Sub Total 489 1, HDN Education Health, Nutrition and Population Social Protection Sub Total INF Energy and Mining Transport Urban Developent Water Supply and Sanitation Sub Total 968 1, PREM Econoic Policy Public Sector Governance Sub Total PSDN Private Sector Developent Sub Total Total 2,573 3,928 2,377 2,53 1,45 Notes: 1. The table includes projects that are either partially or fully cancelled, while Annex 2 includes partial cancellations for projects that are either active or have exited the portfolio. 2. The table shows individual Sector Boards with cancellations exceeding 2.5% of the Bankwide total. 57 of 8

128 W d!4 t d 8- ort h W $ & ( C Q cc IC 5 VI ( U s 5 % t I. c W VI r-n a w a u * E u oc Q C a E VI ( W d a t B 5 % t h VI W

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130 TABLE3.33: QUALITY OF SUPERVISION BY SOURCE OF FUNDS (% Moderately Satisfactory or Better) Source of No. of Funds Projects OA R1 R2 R3 R4 IBRD IDA GEF MONT SPF Bankwide TABLE 3.34: QUALITY OF SUPERVISION BY LlCUS AND NON-LICUS (% Moderately Satisfactory or Better) No. of LICUS Projects OA R1 R2 R3 R4 Yes No Bankwide TABLE 3.35: QUALITY OF SUPERVISION BY NON-DEDICATED MULTI-SECTORS (% Moderately Satisfactory or Better) Non- Dedicated No. of Multi-Sectors Projects OA RI R2 R3 R4 Yes No Ban kwide OA = Overall Assessent R1 = Focus on Developent Effectiveness R2 = Supervision of FiduciaryEafeguard Aspects R3 = Adequacy of Supervision Inputs and Processes R4 = Quality and Realis of Reporting 6 of 8

131 TABLE 3.36: QUALITY OF TRANSPORT, WATER SUPPLY AND SANITATION AND ICT IN MULTI-SECTORAL PROJECTS Table 3.36(a): Quality of Transport (TR) in Non-dedicated Multi-sectoral Projects % Mopderately No. of % Satisfactory?4 Moderately Satisfactory or Projects p,.u,... or Better Satisfactory YSL.SI OA Overall Assessent R1 Strategic Relevance and Approach 16 ai R2 Technical, Financial, Econoic and Safeguard Aspects R3 Policy and institutional Aspects and Ipleentation Arrangeents R4 Risk Assessent R5 Focus on Developent Effectiveness during Supervision R6 Bank Inputs and Processes R6A During Project Preparation and Appraisal R6B During Supervision a Table 3.36(b): Quality of Water Supply and Sanitation (WSS) in Non-dedicated Multi-sectoral Projects OA Overall Assessent R1 Strategic Relevance and Approach R2 Technical, Financial, Econoic and Safeguard Aspects R3 Institutional Aspects and Ipleentation Arrangeents R4 Risk Assessent R5 Supervision Focus on Developent Effectiveness R6 Bank inputs and Processes R6A During Preparation R6B During Supervision 2a a a ia 29 a3 4a a aa Table 3.36(c): Quality of Inforation and Counication Technology (ICT) OA Overall Assessent R1 Strategic Relevance and Approach R2 Technical, Financial, Econoic and Safeguard Aspects R3 Policy and institutional Aspects R4 Ipleentation Arrangeents R4 Risk Assessent R6 Ipleentation Oversight R7 Bank inputs and Processes I No. of t:g:$: % Satisfactory *:-%tory % Moderately Pi Projects v,rrra or Y,.ier Better Satisfactory Better 24 sa _ a 61 of 8

132 In co co co co d co a co 2 a a b a (D a co b N (D Q, Q, a d z

133 TABLE3.38: QUALITY OF AAA BY REGION (% Moderately Satisfactory or Better) Region No. of Tasks OA R1 R2 FY98-99 FY5-6 " FY98-99 FYO5-6 FY98-99 FYO5-6 FY98-99 FYO5-6. AFR EAP ECA LCR MNA SAR OTH~ 21 NA 86 NA 95 NA 95 Total Region No. of Tasks R3 R4 R5 FY98-99 FYO5-6 I' FY98-99 FYO5-6 FY98-99 FYO5-6 FY98-99 FYO5-6 AFR EAP ECA LCR MNA SAR OTH~ 21 NA 86 NA 86 NA 86 Total ' Includes one Active task with a Client Delivery in FY8. * Tasks denote Global tasks. OA = Overall Assessent R1 = Strategic Relevance R2 = Internal Quality R3 = Dialogue and Disseination R4 = Likely Ipact R5 = Bank Inputs and Processes 63 of 8

134 Network ESSD 2 23 FSF 7 11 HDN INF ~ OPCS 7 PREM PSDN 4 8 zzz2 1 TABLE3.39: QUALITY OF AAA BY NETWORK (% Moderately Satisfactory or Better) No. of Tasks OA R1 R2 FY98-99 FYO5-6 'I FY98-99 FYO5-6 FY98-99 FYO5-6 FY98-99 FYO NA 86 NA 1 NA NA 1 NA 1 NA 1 Total Network No. of Tasks R3 R4 R5 FY98-99 FYO5-6 'I FY98-99 FYO5-6 FY98-99 FYO5-6 FY98-99 FYO5-6 ESSD FSE HDN INF OPCS 7 NA 1 NA 86 NA 86 PREM PSDN zzz2 1 NA 1 NA 1 NA 1 Total ' Includes one Active task with a Client Delivery in FY8. Tasks that have not been assigned a Sector Board. OA = Overall Assessent R1 = Strategic Relevance R2 = Internal Quality R3 = Dialogue and Disseination R4 = Likely Ipact R5 = Bank Inputs and Processes 64 of 8

135 TABLE 4.1: AAA DELIVERIES AND COSTS BY REGlONlCOUNTRY RegionlCountry Deliveries (#) initiation to Copletion Costs (US$ ') FY2 FY3 FY4 FY5 FY6 FY2 FY3 FY4 FY5 FY6 AFR Africa ,76 8,81 15,281 22,638 15,19 Angola , Benin ,16 8 Botswana Burkina Faso Burundi Caeroon Cape Verde Central Africa Central African Republic Chad Cooros Congo, Deocratic Republic of Congo, Republic of I Cote d'lvoire Eastern Africa 2 35 Eritrea Ethiopia ,382 2,213 2,767 Gabon Gabia, The Ghana ,6 74 Guinea Guinea-Bissau Kenya ,267 1, ,666 Lesotho Madagascar ,699 1,186 Malawi Mali Mauritania Mauritius ,121 Mozabique , , Naibia Niger Nigeria ,79 2,183 2,219 1,643 Rwanda Sao Toe and Principe Senegal , Seychelles Sierra Leone Soalia South Africa , ,22 Southern Africa 1 Sudan , Swaziland Tanzania ,32 1,17 1, Togo Uganda ,166 1, Western Africa Zabia ,68 1,384 1,79 1, Zibabwe Sub Total ,65 27,934 39,459 52,257 42, of 8

136 TABLE 4.1: AAA DELIVERIES AND COSTS BY REGlONlCOUNTRY RegionlCountry Deliveries (#) Initiation to Copletion Costs (US$ ') FY2 FY3 FY4 FY5 FY6 FY2 FY3 FY4 FY5 FY6 EAP Australia 1 43 Cabodia ,163 1,47 1, China ,161 4,498 4,272 5,256 6,124 China, Hong Kong SAR 2 61 East Asia and Pacific ,786 4,628 2,91 4,211 3,945 Fiji Indonesia ,23 6,176 6,491 5,868 3,258 Japan 1 35 Korea, Republic of , Lao People's Deocratic Republic ,948 Malaysia Mekong Mongolia ,514 Pacific Islands ,613 Palau 1 64 Papua New Guinea Philippines ,437 2,24 1,346 3,284 2,635 Saoa Singapore Soloon Islands Thailand ,532 2, , Tior-Leste , Tonga Vanuatu Vietna ,849 2,298 2,92 1,85 1,781 Sub Total ,258 27,683 23,237 26,oaa 27,676 ECA Albania Arenia , Austna 1 36 Azerbaijan ,413 1, Belarus Bosnia-Herzegovina , ,197 Bulgaria Caucasus Central Asia Croatia , Cyprus Czech Republic EU Accession Countries ,923 Estonia 2 16 Europe and Central Asia ,459 7,534 2,9 6,38 3,89 Georgia , Hungary Italy 1 55 Kazakhstan ,518 2,779 2,24 Kosovo Kyrgyz Republic ,394 1, Latvia Lithuania Macedonia, forer Yugoslav Republic of Moldova , Montenegro Poland , ,218 Roania , , Russian Federation ,517 2,579 4, ,172 Serbia ,627 1, ,313 Slovak Republic Slovenia South Eastern Europe and Balkans , Tajikistan ,63 1, Turkey ,635 1, ,889 1,373 Turkenistan U kratne ,59 1, ,693 United Kingdo 1 77 Uzbekistan , Sub Total ,559 31,95 29,987 29,132 25, of 8

137 TABLE 4.1: AAA DELIVERIES AND COSTS BY REGlONlCOUNTRY RegionlCountry Deliveries (#) Initiation to Copletion Costs (US$ ') FY2 FY3 FY4 FY5 FY6 FY2 FY3 FY4 FY5 FY6 LCR Andean Countries Antigua and Barbuda 1 95 Argentina ,293 1, ,464 Barbados Caribbean Central Aerica Colobia Costa Rica Doinica Doinican Republic Ecuador El Salvador Grenada Guateala Guyana Haiti Honduras Jaaica Latin Aenca Mexico Nicaragua OECS Countnes Pa"ll. -.,.- Paraguay Peru St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines Trinidad and Tobago Uruguay Venezuela, Republica Bolivariana de Sub Total I J " I L I1 7 9 R A I n n I 1 n n I n n n ,443 3,749 1,452 2,323 7, , , ,117 1,969 1,258 1, , , ,593 1,883 2,44 2,852 3, ,533 1,841 1,76 1, ,295 2,982 n AR7 n n n 56 n n n I Ad n AR T 1 n 1n7 --. n ,839 16,628 15,985 18,33 26,782 n MNA Algeria Bahrain Djibouti Egypt, Arab Republic of Gulf Cooperation Council Iran, isiaic Republic of Jordan Kuwait Lebanon... Libya Malta Middle East and North Africa Morocco Oan uatar SaLd Arabia Syr an Arab RepJO IC - Tunisia hted Arab Eorates West Bank and Gaza Yeen RepJb IC of - - Sub Total , , ,398 2, ,273 1, , ,84 4, , ,51 1, , ,152 3,68 3,138 2,38 4, ,17 2,86 1,235 1,74 1, ,194 2,74 3,378 1, , , , ,329 1, ,9 1,34 1, ,44 18,74 17,685 22,546 2,34 67 of 8

138 TABLE 4.1: AAA DELIVERIES AND COSTS BY REGlONlCOUNTRY RegionlCountry Deliveries (#) Initiation to Copletion Costs (US$ ') FY2 FY3 FY4 FY5 FY6 FYO2 FY3 FY4 FY5 FY6 SAR Afghanistan ,779 3,371 1,257 Bangladesh ,159 1, ,935 1,646 Bhutan India ,475 6,619 8,479 8,313 1,119 Maldives Nepal , Pakistan ,58 1,42 1,99 1,91 2,951 South Asia ,69 Sri Lanka , ,858 Sub Total ,23 12,976 16,5 18,589 2,169 OTH Asia 1 16 World ,889 5,414 1,18 14,69 5,671 Sub Total ,889 5,414 1,18 14,69 5,687 Total 724 1,65 1,37 1, , ,28 152,871 18, ,49 Notes: 1. The table includes ESW Reports, Other ESW and TA products. 2. The Deliveries (#) and the Initiation to Copletion Costs (US$ ') includes suppleental deliveries. 3. Effective July 1, 24, '"ConsultationslCountry Dialogue" and "ConferenceMrorkshop" output types are no longer valid for the ESW product line. 4. Initiation to Copletion Costs include post-delivery costs. 68 of 8

139 TABLE4.2: AAA DELIVERIES AND COSTS BY NETWORWSECTOR BOARD NetworWSector Board Deliveries (#) Initiation to Copletion Costs (US$ ') FY2 FY3 FY4 FY5 FY6 FY2 FY3 FY4 FY5 FY6 ACS Adinistrative and Client Support ,416 Sub Total 1 I 83 2,416 Fssn ---- Environent ,85 6,757 6,378 12,175 9,59 Rural Sector ,586 7,641 9,64 14,893 18,987 Social Developent ,297 6,226 7,775 8,5 4,15 Sub Total ,733 2,624 23,218 35,74 32,61 Financial Sector ,35 16,834 16,274 13,13 13,91 Sub Total ,35 16,834 16,274 13,13 13,91 - HDN Education ,5 3,793 9,223 7,87 8,313 Health, Nuttition and Population ,771 3,3 5,94 1,154 8,8 Social Protection ,518 6,72 5,773 6,139 8,635 Sub Total ,788 12,868 2,9 24,99 25,748 INF Energy and Mining 4 5a ,548 5,561 9,562 4,866 6,351 Global Inforation1 Counications Technology , ,615 Transport ,588 3,56 3,239 4,224 2,45 Urban Developent ,718 4,457 5,267 9,131 12,928 Water Suppiy and Sanitation ,364 1,14 1,536 7,116 3,556 Sub Total ,254 14,749 21,275 26,227 27,9 IO,. Professional Developent Sub Total narr "rho Financial Manageent Operational Servtces Procureent Sub Total ~~ 6,451 5,56 4,95 4,372 3, ,171 2,877 2,829 1, ,682 8,861 7,453 6,729 4,64 DDEU Econoic Policy Gender and Developent Poverty Reduction Public Sector Governance Sub Total in," 1R."?A,..rn ,284 23,83 18,39 28,157 23,848 1, ,661 1, ,9 8,211 11,6 7,743 13,355 13,32 12,634 11,191 12,613 1,914 34,218 44,475 42,762 49,789 49,76 DCnN Private Sector Developent ,79 22,121 19,51 24,9 12,31 Sub Total ,79 22,121 19,51 24,9 12,31 PSI Project Finance and Guarantees Sub Total RMN - Resource Manageent 2 23 Sub Total 2 23 Sector Board not Applicable ,23 1, Sub Total 1 I ,23 1, Total 724 1,65 1,37 1, , ,28 152,871 18, ,49 Notes: 1. The table includes ESW Reports. Other ESW and TA products. 2. The Deliveries (#) and the Initiation to Copletion Costs (US$ ') includes suppleental deliveries. 3. Effective July 1,24, "ConsultationslCountry Dialogue" and "ConferenceNVorkshop" output types are no longer valid for the ESW product line. 4. Initiation to Copletion Costs include post-delivery costs. 69 of 8

140 'c l?

141

142 c 2.- P E

143 TABLE 4.6: AAA CONCENTRATION: Top Ten Countries by Nuber of Deliveries, FYO2-6 Region SAR EAP EAP ECA LCR EAP EAP MNA AFR MNA Sub Total Country Delieveries (#) Initiation to Copletion Costs (US$ ') BB TF Total India ,142 9,864 38,6 Indonesia ,294 13,728 3,22 China ,225 8,85 23,31 Russian Federation 97 15,828 2,221 18,5 Brazil 86 12,484 5,898 18,382 Vietna 82 6,939 2,931 9,87 Philippines 77 7,692 4,214 11,96 Saudi Arabia 71 1,169 1,169 Nigeria 63 6,345 2,411 8,756 Morocco 63 7, ,68 1,12 127,1 49, ,538 Total 4, ,18 189, ,781 % of Total 21% 23% 26% 24% Notes: 1. The table includes ESW Reports, Other ESW and TA products. 2. The Deliveries (#) and the Initiation to Copletion Costs (US$ ') includes suppleental deliveries. 3. Effective July 1, 24, "ConsultationslCountry Dialogue" and "ConferencehVorkshop" output types are no longer valid for the ESW product line. 4. Initiation to Copletion Costs includes postdellvery costs. * Expenditures fro the BB budget are reibursed by governents of Saudi Arabia under the reibursable technical assistance progra. TABLE 4.7: AAA CONCENTRATION: Top Ten Countries by Cost of Deliveries, FYO2-6 Region Country Delieveries (#) Initiation to Copletion Costs (US$ ') BB TF Total SAR India ,142 9,864 38,6 EAP Indonesia ,294 13,728 3,22 EAP China ,225 8,85 23,31 LCR Brazil 86 12,484 5,898 18,382 ECA Russian Federation 97 15,828 2,221 18,5 EAP Thailand 62 9,176 4,969 14,145 EAP Philippines 77 7,692 4,214 11,96 MNA Saudi Arabia 71 1,169 1,169 EAP Vietna 82 6,939 2,931 9,87 SAR Pakistan 54 8,591 1,179 9,77 Sub Total 1,2 13,54 53,89 183,629 Total 4, ,18 189, ,781 % of Total 21% 23% 28% 25% Notes: 1. The table includes ESW Reports, Other ESW and TA products. 2. The Deliveries (#) and the Initiation to Copletion Costs (US$ ') includes suppieental deliveries. 3. Effective July 1, 24, "ConsultationslCountry Dialogue" and "ConferenceiWorkshop" output types are no longer valid for the ESW product line. 4. Initiation to Copletion Costs includes post-delivery costs. * Expenditures fro the BB budget are reibursed by governents of Saudi Arabia under the reibursable technical assistance progra. 73 of 8

144 TABLE4.8: AAA DELIVERIES AND COSTS BY OUTPUT TYPE Reports Deliveries (#) Initiation to Copletion Costs (US$ ') FY2 FY3 FY4 FY5 FY6 FY2 FY3 FYO4 FY5 M6 ESW Reports ,558 68,679 81,96 95,825 97,829 Core Diagnostic Reports ,584 25,746 24,484 22,74 2,743 PA ,374 4,578 6,893 4,312 6,588 CEWOPR ,293 7, , 7,123 PER ,988 6,7 5,967 5,196 3,373 CFAA ,554 3,567 2, CPAR ,572 2,211 1, PFP ,99 Other Diagnostic Repotts ,63 14,699 18,39 22,75 24,784 FSAP ,727 7,164 4,635 3,21 4,353 Other ,336 7,535 13,755 18,874 2,431 Advisory Reports ,911 28,234 39,85 51,676 52,31 ESW Policy Notedother Products ,225 22,887 27,472 35,678 19,137 Policy Note ,161 14,22 15,522 35,678 19,137 ConferenceNVorkshop NA NA 2,373 5,635 6,19 NA NA ConsultationsICounty Dialogue NA NA 5,691 3,229 5,841 NA NA All ESW Products ,783 91,566 19, ,53 116,966 TA Output Types Client Docuent Review ,71 5,72 2, ,975 Institutional Developent Pian ,866 14,588 16,654 13,13 17,152 Knowledge-Shanng Foru , ,87 14,913 ModeliSuwey ,711 2,26 1,565 1,687 2,14 "HOW-TO" Guidance ,778 16,172 8,64 1,732 15,38 All TA Products ,643 49,714 43,439 49,212 51,524 Ail AAA Products 724 1,65 1,37 1, , ,28 152,871 18, Notes: 1 The table includes ESW Repads, Other ESW and TA products 2 The Delivenes (#)and fie Initiation to Copletion Cts (US$ 'WO) includes suppleental deliveries. 3. Effective July 1,24, "ConsultationdCoun~ Dialogue" and "ConferenceNVorkshop" output types are no longer valid for the ESW product line. 4. Initiation to Copletion Costs includes postdelivery sts 74 of 8

145 TABLE4.9: ESW DELIVERIES AND COSTS BY REPORT TYPE Report Type Core Diagnostic Reports AFR EAP ECA LCR MNA MULTl Total Core Dlagnostlc Reports Dellverles (#) initiation to Copletion Costs (US$ ') FY2 FY3 FY4 FY5 FY6 FY2 FY3 FY4 FY5 FY ,356 6,38 7,167 9,29 6, ,853 3,285 1, ,767 8,339 8,835 4,624 3, ,452 3,657 4,121 5,252 4, ,129 1,536 2,196 1,765 1, ,27 2, , ,746 24,484 22,74 2,743 Other Dlagnostlc Reports AFR EAP ECA LCR MNA SAR MULTI Total Other Dlagnostlc Reports ,475 3,851 5,499 7,653 1,72 1,523 2,334 3,951 2,937 1,47 4,24 4,627 4,323 3,343 1,237 3,416 2,5 3,269 5, ,994 2,786 1,695 2, ,742 3,78 2, ,63 14,699 18,39 22,75 24,784 Advlsory Reports AFR ,925 4,33 5,997 8,225 11,837 EAP ,667 4,217 8,219 5,468 11,673 ECA ,879 7,468 4,888 8,63 7,41 LCR ,544 3,24 6,238 7,587 7,638 MNA ,913 2,76 2,928 3,155 3,893 SAR ,966 3,119 5,751 7,14 6,893 MULTI ,163 5,65 11,56 3,327 Total Advisory Reports ,911 28,234 39,85 51,676 52,31 All ESW Reports AFR , ,15 22,753 25,96 VIP ,593 9,24 12,16 1,47 16,696 ECA ,116 2,11 18,349 17,577 14,339 LCR ,477 12,41 16,18 18,438 MNA ,64 6,29 7,91 6,614 7,345 SAR ,658 6,114 9,5 1,598 11,492 MULTl ,677 5,65 11,767 3,614 Total All ESW Reports ,558 68,679 81,96 95,825 97,829 Notes: 1. The table includes ESW Reports only. 2. The Deliveries (#) and the initiation to Copletion Costs (S'OOO) Includes suppleental deliveries 75 of 8

146 a U b r U z n : ii: r 4 r 3 r r r. 4 4 z c r - E g r 1 1 r) n 9 6 ( x ( z h ( N I- 2.-< NI.-c N< N C N C r.c N C r c h 5 i-j In W N

147 r IC