Nordic-Baltic Constituency Office to the Board of the World Bank. Annual Report Highlights from Financial Year July 1, 2010 June 30, 2011

Transcription

1 Nordic-Baltic Constituency Office to the Board of the World Bank Annual Report 2011 Highlights from Financial Year July 1, 2010 June 30, 2011 September 2011

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3 Foreword At the time of this Annual Report, the outlook for the global economy is again very uncertain. Unsustainable debt and budget deficits together with high unemployment levels in developed countries have resulted in downward revisions to their growth rates and will most certainly have global effects. Developing countries are still growing at healthy rates, but in some emerging markets there is high inflation and risk of over-heating. Historic transformations are happening in the Middle East and North Africa region with tremendous opportunities, but also with risks involved. This last year has seen volatile and record high food prices - particularly challenging for the poorest and most vulnerable and a severe drought in the Horn of Africa is affecting millions of people. With these global challenges demand for funding from the World Bank Group (WBG) is expected to remain high in the next few years. Difficult choices will have to be made on where to allocate the WBG s large, but constrained, resources. WBG commitments amounted to USD 57 bn in the last fiscal year 1, a decrease from USD 73 bn in the previous year, primarily reflecting a reduction in IBRD commitments to countries recovering from the crisis. IDA commitments rose to a record USD 16 bn in the last fiscal year, while in December 2010 a broadened coalition of 52 donors pledged a record breaking IDA 16 replenishment of USD 49 bn for the next three years, reaffirming the importance of the WBG s role in supporting the poorest countries. During the last year continued efforts have been pursued to modernize the Bank and in particular make it more open, transparent and results focused. Our constituency worked closely with the Bank in the development of a results and performance framework (Corporate Scorecard), and on various openness initiatives. The 2011 World Development Report on Conflict Security and Development was warmly welcomed and supported by our constituency. The report gives important insights and impetus to how the World Bank Group and international partners can improve their work in fragile and conflict affected situations. Our constituency also contributed actively to the development of the WDR 2012 on Gender Equality and Development with a launch at the Annual Meetings Our aim has been to use the WDR to ramp up gender mainstreaming across the WBG to improve development outcomes. With a new Board as of November 2010, the Nordic-Baltic Chair was elected Chairperson of the Board Standing Committee on Development Effectiveness, CODE. This has meant important challenges and an increased workload for the Nordic-Baltic Office. CODE has dealt with several sector strategies, new lending instruments, a number of independent evaluations and the results and development effectiveness agenda of the World Bank Group. Anna Brandt Executive Director for Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, Sweden 1 The fiscal year (FY) of the World Bank Group is: 1 July 30 June.

4 Contents 1. Fragile and Conflict Affected States Gender Equality and Gender Mainstreaming Support for North Africa ns the Middle East Results and Aid Effectiveness Climate Change and Green Growth Agriculture and Food Prices IFC Main Issues MIGA Main Issues Financial Issues IBRD and IDA IFC IBRD and IDA Administrative Budget Remuneration Review Boxes Box I: South Sudan. 1 Box II: Tunisia....3 Box III: The New Africa Strategy and Regional Integration Strategy, Sub-Saharan Africa.4 Box IV: IDA16 Record Replenishment and Special Themes Box V: Inspection Panel Difficult Cases, Difficult Role.7 Box VI: The World Bank Group s First Trade Strategy....8 Box VII: Trust Fund Reforms 10 Annexes Annex A The World Bank and the Nordic-Baltic Office at a Glance Annex B World Bank Five-Year Summary of Selected Financial Data Annex C.1 IFC Selected Financial Annex C.2 MIGA Selected Financial Data Annex D New IBRD Commitments and Disbursements Annex E Summary of the Corporate Scorecard Annex F Nordic and Baltic Staff in WBG Annex G Procurement Data from Nordic and Baltic Countries, Financial Years

5 Abbreviations AFR World Bank Africa Department/Region AMC Asset Management Company CAS Country Assistance Strategy CIF Climate Investment Funds CODE Board Committee on Development Effectiveness CPF Carbon Partnership Facility CSC Corporate Score Card CTF Clean Technology Fund DPL Development Policy Lending EAP World Bank East Asia Pacific Department/Region ECA World Bank Europe and Central Asia Department/Region ECOSOC United Nations Economic and Social Council FCS Fragile and Conflict-Affected States FIP Forest Investment Program FY Financial Year of the World Bank Group (1 July 30 June) GAFSP Global Agriculture and Food Security Program GFRP Global Food Price Crisis Response Program GAP Gender Action Plan GCI General Capital Increase IBRD International Bank for Reconstruction and Development IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation IFI International Financial Institution ISN Interim Strategy Note IMF International Monetary Fund LAC World Bank Latin America and Caribbean Department/Region LIC MENA Low Income Countries World Bank Middle East and North Africa Department/Region MDB Multilateral Development Bank MDG Millennium Development Goals MDTF Multi Donor Trust Fund MIC Middle-Income Countries MIGA Multilateral Investment Guarantee Agency NBC Nordic-Baltic Constituency ODA Official Development Aid OECD Organization for Economic Cooperation and Development PPCR Pilot Program on Climate Resilience RE/EE Renewable Energy/Energy Efficiency REDD Reducing Emissions from Deforestation and Forest Degradation RSR Rapid Social Response SAR World Bank South Asia Department/Region SDN Sustainable Development Network SDPL Special Development Policy Loan SREP Scaling-up Renewable Energy Program TFMF Trust Fund Management Framework UN United Nations UNFCCC United Nations Framework Convention on Climate Change WAVES Wealth Accounting and Valuation of Ecosystem Services WBG World Bank Group WDR World Development Report

6 1. Fragile and Conflict Affected States The much anticipated World Development Report on Conflict, Security, and Development (WDR11) was officially launched at the Spring Meetings The Report was a landmark achievement, and was very well received by the international community. It is expected to significantly influence the Bank s approach to Fragile and Conflict-affected States (FCS), as well as the Bank s and other actors approach to donor coordination. Our constituency played a crucial role in the elaboration of the WDR2011, both with regards to its financing and through regular consultations with the Report Team. Several constituency capitals have had launching events of the report. For the World Bank Group, the report will have a considerable operational impact as the Bank seeks to draw on its recommendations and the lessons learned. In this respect an important first step is to make Country Strategies more fragility-focused when relevant. Improving the Banks partnership with other stakeholders, not least the UN, on Development, Security and Justice in fragile situations is a key element as well. In addition, the Bank will seek to increase its focus on jobs and private sector development in its programs, while realigning Results and Risk Management framework for FCS, seek less volatility in their financing and, at the same time, strive for excellence in the work being done in FCS, i.a. through enhanced training of staff. At the national level, the report outlined practical programs to link rapid confidence-building to longer-term institutional transformation. Initiatives will focus on strengthening of national institutions in order to improve local governance, justice, citizen security, employment, gender equality, and anti-corruption. Early and sustained engagement will be essential as well as establishing realistic expectations to results. To follow up on the recommendations of the report and provide assistance to country teams in FSC, the Bank has established a Global Hub on Conflict, Security and Development, based in Nairobi, Kenya. Box I: South Sudan After decades of civil war, South Sudan became an independent state July 9, Difficult negations with Sudan (the north) lie ahead, particularly with respect to sharing of petroleum revenues, issues relating to citizenship, territorial disputes, and debt relief. South Sudan is a very poor country with one of the lowest human development indicators in the world, and over half of the population lives below the poverty line. The new country is confronted with urgent needs, and the Bank has in line with the recommendations of the WDR 2011 on Conflict, Security and Development, sought to provide early assistance amounting to USD 75 mn for health care, infrastructure, and employment. While South Sudan s application for membership in the World Bank/IMF is pending, the Bank s contribution is taken from the IBRD surplus, and will be debited against future IDA contributions to South Sudan. The disbursement rate for the Bank s existing Multi Donor Trust Fund for South Sudan is above 80% or roughly USD 500 million. IFC has with financing from i.a. Denmark, agreed with the new Government to provide advice on how to establish an environment that is conducive for private sector development. The Bank has been working closely with the Government of South Sudan (GoSS) and other partners to finalize and prioritize the development plan for South Sudan which will be presented at a donor forum in the fall. The Bank aims to present an improved donor coordination mechanism currently being worked out by the Bank, the African Development Bank and other donors. There are also tentative plans for a pledging conference on South Sudan in early South Sudan s membership application in the Bank/IMF is expected to be resolved by the end of 2011, and the Bank is preparing a new interim strategy for South Sudan which will be presented to the Board in the first half of The Bank has appointed a full-time Country Director for Sudan and South Sudan, which for the time being is located in Nairobi. Page 1

7 2. Gender Equality and Gender Mainstreaming The Nordic-Baltic Constituency has continued to actively advocate the need for improved gender mainstreaming in the WBG. Several initiatives have been undertaken, which are expected to transform the way the WBG addresses gender issues to achieve better development outcomes. IDA deputies designated gender as one of the special themes for IDA16. Actions to scale-up gender mainstreaming in IDA countries will include the preparation of regional gender action plans, improving the integration of gender issues in country assistance strategies, intensifying capacity building, and strengthening the results framework for gender. A Three-Year Road Map for Gender Mainstreaming ( ) was launched in January The Road Map focuses on key areas such as increasing women s economic empowerment, lowering maternal mortality, reducing gender disparity in education and social protection, and generating gender related data. A robust results framework will help to strengthen Management s accountability and allow to better track progress. The most important development during FY2011 was the preparation of the World Development Report (WDR2012) on Gender Equality and Development. This report provides lessons learned and recommendations for the Bank and the international community to support and promote gender equality in developing countries more effectively. The Nordic-Baltic Constituency has been a strong supporter of the WDR team, both financially and through substantive consultations. WDR2012 will argue that gender equality matters for development and that gender equality is a core development objective in its own right. Gender equality can bring substantial economic gains, raise productivity, improve other development outcomes, and contribute to more representative decision-making. The report identifies the areas where gender gaps are most persistent and require direct policy interventions: reducing excess female mortality and closing education gaps; improving access to economic opportunities for women; increasing women s voice and ability to make choices, and limiting the reproduction of gender inequality across generations. The report also highlights where more analysis and data are needed. The WDR2012 and its key implications for the WBG s work on gender will be highlighted at the Annual Meetings in September The WBG will seek to implement the WDR2012 s recommendations through scaling up the policy dialogue, advice and programs, enhancing country-level gender diagnostics, increasing the availability of gender related data, and leveraging partnerships. 3. Support for North Africa ns the Middle East In light of the Arab Spring in the MENA region, the World Bank, in cooperation with the regional Multilateral Development Banks, has established a New Partnership for Inclusive Growth in MENA. This partnership focuses on: (1) Strengthening Governance Framework with the aim of increasing transparency, accountability and citizen participation by opening access to information, supporting civil society and strengthening corporate governance. (2) Ensuring Economic and Social Inclusion by emphasizing the development of lagging regions, participation of women and youth, protection of the vulnerable against shocks, and targeting subsidies/building safety nets. (3) Job Creation with focus on support to short-term job creation through employment response packages and MSME development, income support to the unemployed, workfare programs, economic diversification over the medium-term, better matching of skills to market needs and reform of labor market policies. (4) Acceleration of Inclusive, Private Sector-Led Growth, which objective is the restoration of investor confidence to attract domestic and foreign investment, establish transparent and effective legal and regulatory frameworks, Page 2

8 and foster competition by encouraging entry and the reduction of the discretionary powers of the countries administrations, address the infrastructure gaps while facing challenges of environmental sustainability and climate change, including through Public-Private Partnerships. The World Bank has succeeded in moving forward quickly with an assistance program in coordination with the Tunisian authorities see Box - while a program package for Egypt is still underway. The Bank has set aside USD 6 bn for the two countries in the next two years. Page 3 Box II: Tunisia In line with the World Bank s New Partnership for Inclusive Growth in MENA, the Bank has in record time and with substantial flexibility moved forward in cooperation with the Interim Authorities in Tunisia to provide assistance to consolidate social and economic change, and prepare the ground for further reform. The first step in this effort is a Development Policy Loan, approved by the Board in June The loan amount is USD 0.5 bn. In addition to Bank funding, the African Development Bank will provide another USD 0.5 bn, the EU USD 65 mn, and the French Development Agency an additional USD 275 mn, for a combined total of USD 1.34 bn. The policy loan focuses on those areas that fall under the mandate of the interim government, such as improved governance, opportunity and employment. Improved transparency and accountability is an absolute priority, in response to public demand and one of the underlying causes of the revolution. Immediate remedial action to assist the unemployed and the poorest and most vulnerable families is as well a significant part of the current program. Moreover, the objective is to portray that Tunisia is fairly stable and open for business; that cronyism, as practiced under the previous regime, is gone and there is a level playing field for private sector growth. As Tunisia makes further progress, and following planned elections by October 2011, the Bank will move rapidly to prepare an Interim Strategy Note for the Board s consideration. A full Country Partnership Strategy will have to wait until an elected Government is in place and a new Constitution has been adopted. 4. Results and Aid Effectiveness The new Corporate Scorecard (CSC) builds on the World Bank s comprehensive systems for measuring and monitoring development results and its own performance. The CSC uses an integrated results and performance framework, organized in a four-tier structure (see Annex E). Two of the tiers track elements of development results (Tiers I and II), and the other two capture elements of Bank performance (Tiers III and IV). The CSC monitors at an aggregate level whether the Bank is functioning efficiently and adapting itself successfully (Tier IV), and managing its operations and services effectively (Tier III) to support countries in achieving results (Tier II), in the context of global development progress and priorities (Tier I). The first World Bank for Results (WB4R) Report provides the Bank s shareholders, stakeholders and partners with an integrated view of results and performance. It reports on the aggregate results countries have achieved with the support of the Bank against the backdrop of global development results. It also reports on the Bank s own operational and organizational performance at the corporate level. The report serves as a companion document to the World Bank CSC and expands on the CSC by providing context and information around the scorecard indicators, highlighting areas of progress and those that require further attention. Going forward, the World Bank is developing an interactive web-based dashboard to give stakeholders easy access to the data on the CSC indicators and to results information. The WB4R Report will increasingly be webbased, providing links to additional sources of information, such as geo-maps of project locations, sector strategies, and development data. The fourth High Level Forum on Aid Effectiveness (HLF-4) will take place in Busan, Korea in late November It will review progress on aid effectiveness commitments and establish a forward looking agenda, including

9 through recognizing new and diverse partners and approaches. The World Bank is heavily involved in the OECD DAC Working Party on Aid Effectiveness which is preparing and shaping the discussions leading up to HLF-4. A number of independent assessments have found that the World Bank performs well on aid effectiveness, and there has been steady progress on the Paris Declaration Survey Indicators from 2005 to However, the Bank is cognizant that there is still room for improvement, in particular with respect to the use of country systems, and the Bank s role in country-level coordination. Regarding results-based financing, the Bank expects that a new instrument: Program for Results or P4R that has been under preparation in the last year, will be ready for presentation at the Busan Forum. P4R is intended to enhance the Bank s use of country systems coupled with long term institution building. P4R should facilitate the Bank s work with other development partners, for example in sector programs. The Bank is working for a post-busan outcome with enhanced country-level accountability and implementation, as well as a 'lighter' and less technocratic global super-structure on aid effectiveness. Another critical issue at Busan will be how to include a broader set of actors (NGO, CSOs, new donors) and approaches (South-South). The Board has already had informal consultations with Management on the Bank's engagement and priorities at Busan, and more interaction is planned leading up to Busan, including a CODE discussion on an IEG evaluation of donor coordination in IDA countries in September. Box III: The New Africa Strategy and Regional Integration Strategy, Sub-Saharan Africa The Bank unveiled its new strategy for Africa in March The new strategy was prepared at a time with strong optimism with respect to the prospects for Africa, as indicated by strong economic growth and some reduction in the poverty rate over the last decade. The main challenges in Africa are found in the large number of fragile states where the MDGs seem far from attainable, the performance of the Bank s portfolio is lagging, and the governance and capacity problems are most pronounced. The strategy is built around two pillars (competitiveness/employment and vulnerability/resilience) and a foundation (governance and public sector capacity). Improved agricultural productivity and more investment in infrastructure are key parts of the strategy. The Bank recognizes the need for increased selectivity and prioritization. It expects this to be an important element in the partnerships with the client, private sector and development partners. The new Africa strategy will attempt to underpin country strategies with a multi-sector approach. The Bank will focus on where the MDGs are lagging, and the weak portfolio performance in fragile states in Africa will be addressed by further decentralization, including to the new fragile states hub in Nairobi, incorporation of the recommendations of the WDR 2011 on Conflict, Security and Development, and by staff training. The results framework is still work in progress, but will be aligned with the IDA 16 framework and the Corporate Scorecard. In addition, the Bank is committed to promoting regional cooperation on the Continent, and to work with regional African organizations like the AU and sub-regional economic communities. The Bank has its own separate strategy on how to foster increased regional integration and cooperation in Africa The Regional Integration Assistance Strategy for Sub-Saharan Africa (RIAS) sets out a comprehensive framework for engagement, including three strategic pillars to guide Bank support for regional integration: (1) regional infrastructure development; (2) institutional cooperation for economic integration, and (3) coordinated interventions to provide regional public goods, with a cross-cutting theme of capacity development of regional institutions. The RIAS will be updated in line with lessons learned and the focus of the new Africa Strategy, and implemented by leveraging partnerships, knowledge, and World Bank Group financing. RIAS Results Framework will be improved and monitoring aligned with the monitoring system set out in the Africa regional Strategy. An increased emphasis will be put on regional solutions for fragile states, climate change and gender aspects. Page 4

10 5. Climate Change and Green Growth In recent years, the World Bank has expanded support to climate-resilient and low-carbon investments. Already in FY2010 close to 90% of all country assistance and partnership strategies addressed climate change, and investments in renewable energy (RE) and energy efficiency (EE) reached USD 5.5 bn. An increasing number of operations address policy and institutional developments needed to tackle climate change such as operations in Mexico, Turkey, Morocco and Indonesia. In June 2011, the Board approved a Development Policy Loan for Poland (USD 1.1 bn) in support of energy efficiency and renewable energy. In FY2011, the Bank financed low-carbon growth studies in Brazil, China, India, Indonesia, Mexico, Poland, and South Africa, supporting country efforts to implement national climate change action plans. The Bank is funding more than 180 country-led activities in Latin America and the Caribbean that will provide climate change adaptation and mitigation benefits estimated to be worth more than $7.3 billion. The Climate Investment Funds (CIFs), with USD 6.5 bn commitments since their 2008 inception, channel resources through the World Bank and other Multilateral Development Banks (MDBs). CIFs are playing a key role in meeting international objectives regarding climate change, with activities in 45 countries so far. The CIF s Clean Technology Fund is leveraging investments 1:8 from the private sector, the multilateral development banks, national governments, and bilateral donors. The Bank is concerned that all CIFs are committed while demand for new investments are high, and the Green Climate Fund is not yet established. Thus, the Bank has in FY2011 approached donors to recommit funds for CIF, but until mid 2011 no new funds were pledged. At the UN Climate Change Conference in Cancun in December 2010, the Bank announced the creation of the Partnership for Market Readiness, which brings developed and developing countries together to explore and pilot new market instruments to scale-up mitigation efforts. In April 2011, a draft Energy Strategy was discussed in the Board s Committee for Development Effectiveness. Due to differences among Board members on the Bank s involvement in financing new coal fired power plants, deliberations over the Energy Strategy will continue in FY2012 Environmental and natural resource management activities are increasingly being mainstreamed into sector level projects. A draft Environment Strategy to be discussed by the Board in FY2012 attempts to respond to the call for "greener development" by laying out a vision for a Green, Clean and Resilient World for All". The World Bank Group has developed a number of services, instruments and tools that will help developing countries transform their economies towards green growth. These include a virtual Green Growth Knowledge Platform, expected to be launched early 2012 with OECD, UNEP and other partners; a Green Growth Flagship Report - to be published in February 2012 as a major contribution to the Rio+20 process; a Wealth Accounting and Valuation of Ecosystem Services (WAVES) program to demonstrate how to incorporate natural capital in national income accounts; initiatives regarding oceans' health and importance; low emission and climate resilient development strategies, sustainable cities program, etc. Box IV: IDA16 Record Replenishment and Special Themes The December 2010 conclusion of the replenishment of IDA for the period of July 2011 to July 2014 exceeded all expectations, particularly in light of the challenging global economic environment. Funding increased by 18 percent compared to the previous round and includes pledges both from traditional donors as well as current and former IDA borrowers, in addition to funding from within the World Bank Group. Fifty two countries contributed to the last IDA replenishment and former IDA recipients like China, Egypt, Korea and Turkey are now IDA donors. Even if their contributions Page 5

11 do not form a major part of the replenishment, it is an important first step and indicative of their recognition and appreciation of the role IDA served in their own progress and development. A total commitment of USD 49.3bn was made to the world s poorest countries under the new replenishment and, thus, will fortify IDA s key role in the advancement of the Millennium Development Goals. 79 of the world s poorest countries will receive assistance that will serve to increase growth and alleviate poverty by financing key infrastructure, improving health services, providing education for children, and combating climate change. Special focus will be given to gender issues and assisting fragile and conflict affected states as they seek to further peace and development. Sub-Saharan Africa will remain a major focus of IDA support. IDA 16 further specified four Special Themes against which to measure development results. They are: 1) Enhancing IDA s Capacity to Respond to Crises; 2) Accelerating Progress on Gender Mainstreaming and Gender-Related MDGs; 3) Achieving Climate Resilient Development; and 4) Supporting Fragile and Conflict Affected Countries. These Special Themes are an integral and complementary part of the IDA16 results package which includes the overarching pursuit to achieve and measure results. Despite the successful replenishment of IDA 16, the financial sustainability of IDA is by no means assured. Thus, a more stable and predictable funding mechanism should be considered for the future. A special Working Group has been formed among IDA donors to focus on this issue. Sweden is a member of this Group. Three additional IDA 16 donor Working Groups have been established to focus on respectively Development Results, Inclusive Growth, and Fragile and Conflict-affected States. Denmark participates in the Working Group on Inclusive Growth and Norway in the Group on Fragile and Conflict Affected States. 6. Agriculture and Food Prices Recent volatility and spikes in international food prices have globally pushed an estimated 44 mn people into poverty since June Food prices roughly doubled between 2006 and 2008 and prices of some agricultural product increased even more. Though the situation eased when economic activity was affected by a worldwide financial crisis, prices started again to rise in 2010, and a new record level was recorded in February For some products, the price level increase continued until summer Since then, prices have eased somewhat. The WBG has taken a number of initiatives in response to the food price volatility and food price increases. The Bank supports an increase in agricultural productivity, focusing on improved crop production techniques, water supply, and market access. Investment in agriculture and rural development remained a high priority for the Bank in FY2011. The Bank s Agriculture Action Plan expects an increase in support from the Bank Group to agriculture and related sectors from an average annual level of USD 4 bn in fiscal years to USD 6 8 bn in The Bank extended its Global Food Price Crisis Response Program (GFRP), which has provided support to almost 40 mn people in more than 40 countries since it was created in The program has been extended through The World Bank has, with the encouragement of G8/G20, established the Global Agriculture and Food Security Program (GAFSP) as a multi- donor trust fund. The program was launched in 2010 to fill the financing gaps in national and regional agriculture and food security strategies. Commitments and contributions have been far lower and slower than expected. By 2011 governments have pledged close to USD 1 bn, of which the Bank has received 520 mn. GAFSP has allocated almost USD 500 million in funding for projects in the hardest hit countries. The World Bank is addressing climate concerns by smart land and water management to deliver both adaptation and mitigation benefits. Other core areas of its portfolio include sustainable fisheries, forestry, community-driven development, livestock development, land tenure, responsible agro-investment, and rural finance. In the field of agriculture risk-management, the IFC has started to provide insurance against price variations of certain agricultural products. Most of the agriculture commodities in the Facility will be food-related and will include wheat, sugar, cocoa, milk, live cattle, corn, soy bean, and rice. By 2014, the program is expected to cover deals totaling USD 12 bn. Although this corresponds to roughly only 0.5% of world agricultural production, the Page 6

12 program is expected to help firms operating in the developing countries as they don t have access to commercial insurance markets. The treasury of the Bank is studying the possibility of creating a market for similar insurance products aimed at governments of client countries. The World Bank has been active in reforming the Consultative Group on International Agricultural Research (CGIAR). CGIAR is a key operator in enhancing cooperation and avoiding overlaps in research agendas in order to more effectively and efficiently reach results that address poverty alleviation and productivity increases. Several countries in our Constituency are major contributors to CGIAR. Page 7 Box V: Inspection Panel Difficult Cases, Difficult Role The World Bank s Inspection Panel provides a mechanism of redress for third-parties (individuals or communities) adversely affected by non-compliance of Bank policies in the design and implementation of Bank projects. The Inspection Panel reports directly to the Board. Our Constituency is a strong supporter of the Inspection Panel as a vital accountability feature for the World Bank, and due to its importance to the perception of the Bank by external stakeholders. The Inspection Panel is currently chaired by Roberto Lenton. Alf Morten Jerve, who is a Norwegian and currently sits on the 3-member panel, is in line to become Chair from February During the first half of 2011, two difficult cases involving the forestry sector in Liberia and water supply in Lebanon resulted in a polarized discussion in the Board with respect to the role and scope of the Inspection Panel. A number of Board Members, mostly from developing countries, are of the view that the Inspection Panel has been expanding its reach beyond its mandate. The Liberia forestry case triggered a principled discussion on the application of the eligibility criteria of the Panel, the assertion of harm in relation to the project, and the Panel s role in mediating and implementing an action plan of remedies between Management and the aggrieved party. The critical chairs questioned, for example, if the Bank s USD 2 mn technical assistance project could be linked to the harm asserted in the complaint. In the Lebanon water supply case a way forward was found only after the Panel agreed to postpone the issue till after the completion of an independent study commissioned by Management. In light of the findings of the study and follow up action by Management, the Inspection Panel has decided to await developments and report to the Board in 2013, if further investigation is warranted. The Board has requested the Inspection Panel to, within its existing mandate, review its operating procedures with a view to greater efficiency and providing the Panel with a wider range of options than to investigate or not when responding to requests. 7. IFC Main Issues In 2011 the Board approved IFC s updated Sustainability Policy and Performance Standards on Environmental and Social Sustainability. The approval was preceded by a thorough consultation process, both externally and internally. Nordic-Baltic Governments and civil society participated actively in the debate. IFC s Sustainability Framework has evolved into a leading benchmark for environmental and social risk management for cross-border private investments. The Framework guides 32 Export Credit Agencies, several MDBs and Development Finance Institutions, as well as 71 private financial institutions under the voluntary Equator Principles. The new policy takes effect on January 1, The update is gradual and aims to better reflect emerging good practices and standards in the private sector - in particular in areas such as climate change, human rights, risk categorization, financial intermediaries and supply chain risk management. Our Constituency s efforts were instrumental in ensuring that the requirement to respect human rights was included as part of the private sector s responsibility. In parallel, IFC s Access to Information Policy (former Disclosure of Information Policy) has been brought in line with major changes at the World Bank. This implies a presumption in favor of public access, while recognizing

13 IFC s specificities. As a result, IFC will disclose significantly more information throughout the project cycle, including on environmental, social and developmental outcomes. The organizational reform process and increased decentralization under the heading of IFC 2013, while not devoid of internal disruptions requiring a continuous internal learning process, has simplified the investment matrix structure and streamlined procedures for frequently performed new business and portfolio tasks. In 2011 IFC launched the pilot phase of its Development Goals covering six corporate-wide priority areas with clear targets with a view to integrating results measurement within IFC s business strategy. The concept, adjusted if necessary, is expected to be fully rolled out in FY2013. In FY2012 the World Bank Board will continue deliberations on establishing a policy for IFC regarding Offshore Financial Centers. In FY2011 our Chair, together with some European Chairs, has consistently requested IFC to follow closely OECD s Global Forum s work in assessing countries compliance with international tax standards. However, a number of borrowing country Chairs, reject that standards from a non-wbg entity should influence IFC and the Bank s operations. IFC will consult i.a. authorities in our Constituency, step-up the dialogue and mutual understanding with the Global Forum, and come back to the Board with a new policy proposal. Box VI: The World Bank Group s First Trade Strategy The World Bank Group s first ever Trade Strategy was adopted in June Through extensive and thorough consultations with different stakeholders, including development agencies in our constituency, the WBG has defined its comparative advantage among other global actors in supporting trade as a development tool. The WBG will focus on the trade value chain: competitiveness and regulations, facilitation and logistics, market access, cushioning shocks, promoting inclusive growth models and introducing trade aspects horizontally in its strategic fabric. Moreover, the Strategy will enhance attention on trade issues within the WBG. The World Bank expects the strategy to increase awareness, efficiency and cooperation between WBG entities. A newly established internal Trade Council shall offer a venue to discuss cross-cutting trade issues. Upcoming regional strategies and loan products will include highlighted trade dimension. A reformed Multi Donor Trust Fund, MDTF, on Trade enables the WBG to respond to clients needs and provide studies. At present, Finland, Norway and Sweden, with a combined contribution of USD 20.5 mn, provide more than 70% of donor financing to the MDTF. 8. MIGA Main Issues FY2011 was marked by the gradual recovery of foreign direct investment flows to developing countries which resulted in increased investors demand for MIGA s political risk insurance products. In addition, events in the Middle East and North Africa contributed to a greater awareness of political risk. This year MIGA issued USD 2.1 bn in guarantees, which is a significant increase from last year s level of USD 1.5 bn. Out of 50 new guarantee contracts issued by MIGA during the year, 34 were in the priority areas identified in MIGA s business strategy, namely IDA countries, conflict affected countries, complex projects, and South-South investments. New issues combined with a lower level of guarantee cancellations resulted in the overall growth of MIGA s guarantee portfolio. The total gross and net exposures 2 at June 30, 2011 amounted to USD 9.1 bn and USD 5.2 bn compared to USD 7.7 bn and USD 4.3 bn respectively at the end of FY2010. FY2011 was also important for MIGA in terms of its business modernization agenda. MIGA s member states approved amendments to MIGA s Convention allowing MIGA to insure a broader range of investments. For instance, MIGA is now able to insure project debt and provide political risk insurance to new foreign investors 2 The difference between gross and net exposure is the amount that is reinsured by MIGA. Page 8

14 purchases of existing investments. The Convention changes also encompass simplification of procedures, including the guarantee application process. Furthermore, MIGA s Executive Board endorsed an updated MIGA business strategy for FY12-14 Achieving Value-Driven Volume. The new strategy reaffirmed MIGA s commitment to supporting investments in its current priority areas, as they offer significant development impact, reflect MIGA s core comparative advantages within the political risk insurance market, and are consistent with the WBG s post-crisis directions. During FY2011 MIGA continued scaling up its client outreach and increased its focus on investors from emerging markets. In August 2010, MIGA launched a hub in Asia and started operations in Hong Kong, China, and Singapore. 9. Financial Issues 9.1 IBRD and IDA In FY2011 IDA commitments reached USD 16.3 bn, which is 12% more than last financial year. Around USD 7 bn or 43% of these commitments went to Sub-Saharan Africa. Thus, IDA did not reach the goal of having at least half of its commitments in Sub-Saharan Africa. IBRD lending reached USD 26.7 bn. Despite the decrease in loan commitments and disbursements since last year, demand for IBRD loan products still remains strong and well above pre-crisis levels of around USD 15 bn (see Annex D). Over the crisis years, IBRD s commitments have totaled USD 103 billion (FY09-11). In terms of division between regions the highest share of new commitments in FY2011 went to Latin American and Caribbean region as in previous years (see Annex D). Lending to five countries is capped by the so-called Single Borrower Limit that sets the maximum exposure to IBRD s most creditworthy and largest countries (in terms of population and size). The maximum level of exposure will be maintained at USD 16.5 bn, except for India at USD 17.5 bn for FY2012. Our Constituency supports this cap to ensure that also the smaller IBRD borrowers are able to receive a fair share of available resources in the coming years. The FY2011 allocable net income was USD 996 mn. This amount will, according to the proposal for World Bank Governors decision at the 2011 Annual Meeting, be spilt in three portions: USD 520 mn will be transferred to IDA; USD 401 mn to reserves, and USD 75 mn to the Surplus account. The latter amount will from the Surplus account be allocated to finance activities in South Sudan before the country becomes a member of the World Bank and receives its normal IDA allocation (see Box I). Earlier in the year World Bank Governors agreed to transfer another USD 75 mn from the Surplus account to replenish the Trust Fund for West Bank and Gaza to finance the World Bank s program there. In March 2011 the Board of Governors of the Bank approved three resolutions that reflect the agreement from the Spring Meetings in 2010 on increasing the voice of developing countries and strengthening the Bank s capital: (a) "2010 Selective Increase in Authorized Capital Stock to Enhance Voice and Participation of Developing and Transition Countries", (b) "2010 General Capital Increase", and (c) "2010 Additional Increase in Authorized Capital Stock for Subscription of New Members". 9.2 IFC Operational and financial results: In FY2011, IFC provided USD 18.7 bn (up from USD 18.1 bn in FY2010) in financing for private sector development. Close to 251 projects, corresponding to USD 4.9 bn, or 48% of the number of projects and 27% of the value, were in IDA countries. Commitments for trade finance and for the financial sector were the sectors with the strongest growth rate, with 38% and 25% respectively of total new commitments. Page 9

15 Out of the USD 18.7 bn, USD 6.5 bn stem from third party debt and equity finance mobilization an increase of 20% compared to FY2010. Outside investors, such as sovereign wealth funds or pension funds, contributed USD 2.9 bn in equity capital through IFC s Asset Management Company (AMC). For each dollar committed, IFC mobilized USD 0.54 in FY up from USD 0.42 in FY2010. Advisory Services project expenditures reached USD 195 mn, of which 66% went to IDA countries. A substantial part of IFC s Advisory Services are paid for by donors, including not least countries from our Constituency. IFC s solid financial performance confirms the emerging recovery after the global crisis, albeit the future may bring increased volatility. FY2011 income stands at USD 2.2 bn as compared to USD 2 bn in FY2010 and USD 0.3 bn in FY2009. Net of the USD 0.6 bn grant paid to IDA, IFC s income reached USD 1.6 bn in FY2011. Box VII: Trust Fund Reforms A substantial part of the WBGs operational expenses are financed through donor supported trust funds. There is consensus among the Board and Management on the need for a better strategic alignment of Trust Funds with the Bank s strategy, planning and management processes. This is expected to underpin improved oversight and accountability and result in better development outcomes. In this process we have stressed the need for improved alignment with Country Assistance Strategies, Sector Strategies and the Post-Crisis Directions, as well as integration into the administrative budget. We have further noted our support, in principle, of umbrella structures for TFs, if they will result in a real decrease in the number of TFs and not simply add another administrative layer. Also, we have advocated for the Bank to clearly convey its preference for Multi-Donor over Single Payer TFs. As significant portions of TF funding, in our experience, goes towards co-financing purposes, we have encouraged the Bank to explore the possibility of creating other means for donors to co-finance Bank projects and programs other than through creating separate TFs for each co-financing arrangement. Management will take input from two consultation meetings with donors as well as numerous recommendations from the Bank s Independent Evaluation Group (see: Trust Fund Support for Development: An Evaluation of the World Bank s Trust Fund Portfolio) into account, when presenting the concrete proposals for TF reform, expected to be discussed in the Board late October IBRD and IDA Administrative Budget In June 2011, the Executive Board approved the net administrative budget for FY2012 of USD 1.8 bn. FY2012 is the seventh consecutive year that the budget is flat in real terms and managed within +/- 2% flexibility band. This is part of the World Bank s commitment to improve the financial sustainability of the institution in line with the agreement at the Spring Meetings in In FY2011, the Bank improved its budgetary system with a new business planning model to facilitate budget reallocations in line with the strategic priorities, and to increase cost consciousness among staff. The system has been piloted in Regional Units, and Management will extend the process to other units in FY2012. As part of the improved budgetary cycle, the Board will provide strategic guidance to Management four times a year. 9.4 Remuneration Review In FY2011, at the request of the Board, including our Constituency, the WBG has started a comprehensive review of its remuneration and benefits systems. It will be carried out in phases over a period of three years. The overall objective of this review is to modernize and rebalance the remuneration and benefits in a sustainable and cost-effective way, without risking the Bank s position as employer of choice. Page 10

16 Phase I of the remuneration review was completed by February 2011, when the Board approved a new formula for determining annual salary adjustments 3 for WBG staff, the alignment of the country office salary reviews with that of HQ in terms of timing and governance, and the elimination of the Market Premium Program. These changes were implemented in June Phase II of the remuneration review, focusing on the comparator mix (weights of public vs. private sector market data) and bonus inclusion in the salary scale, will be completed by the end of FY2012. During FY12-FY14 the WBG will also carry out a comprehensive review of benefits, with immediate focus on mobility benefits in support of decentralization, and on medical and pension benefits. 3 The new formula for determining annual compensation adjustment (or OPI Overall Pay Increase) is comprised of three elements: a) a structure adjustment, b) a salary progression adjustment (in lieu of comparatio), and c) a supplemental merit increase (SMI). Page 11

17 Annex A The World Bank and the Nordic-Baltic Office at a Glance The World Bank was established in 1944 primarily to help rebuild Europe after the Second World War. Today, the Bank s mission has shifted to help reduce poverty in the developing world through economic and social development and reconstruction. The Bank is formally one of the UN specialized agencies, entirely with its own autonomous financing and decision-making, with 187 member countries as shareholders. Along with the rest of the development community, the World Bank focuses its efforts on supporting countries in the challenge to reach the Millennium Development Goals (MDGs) by The World Bank Group consists of five separate organizations. The IBRD and the IDA respectively provide low-interest loans, interest-free credit, and grants to developing country governments. The IFC promotes private sector investment by co-investing with equity and loans to companies in developing countries as well as providing advisory services, both to companies and the public sector. The MIGA provides guarantees against political risk to investors in and lenders to developing countries. The ICSID settles investment disputes between foreign investors and their host countries. 1 The World Bank's highest decision making body is its Board of Governors, representing member countries as government shareholders. The Governors, generally finance and development ministers from all member countries, meet once a year for an annual meeting, jointly with the International Monetary Fund (IMF) and twice a year at a 25 member Development Committee meeting providing political guidance for the Bank. The daily decision making is delegated from Governors/Ministers to 25 Executive Directors, representing one or several of the 187 shareholders in the Executive Board. The Nordic and Baltic countries are represented at the Board by one Executive Director (ED). The ED is assisted by the Nordic Baltic Office (NBO) where the following persons worked during the time covered by the report: 2 Executive Director Alternate Executive Director Senior Advisor Senior Advisor Senior Advisor Advisor Advisor Advisor Advisor Program Assistant Short Term Temporary Anna Brandt (Sweden) Jens Haarlov (Denmark) Anna Ferry (Sweden) Dovile Jasaitiene (Lithuania) Ola Storberg (Norway) Inguna Dobraja (Latvia) Mart Kivine (Estonia) Markus Sovala (Finland) Fridrik Jonsson (Iceland) Betsy A. Barrientos Gun-Maj Ramberg The Nordic Baltic Executive Director is Chairman of the Committee on Development Effectiveness (CODE). The Alternate Executive Director is a member of the Subcommittee on Development Effectiveness. 1 The International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). 2 Anna Brandt joined the office as Executive Director on August 31, Jens Haarlov joined the office as Alternate Executive Director in October Anna Ferry joined the office as Sr. Advisor in January Dovile Jasaitiene joined the office as an Advisor in February 2009 and as Sr. Advisor in August Ola Storberg joined as an Advisor in September 2009 and Sr. Advisor in August Inguna Dobraja joined the office as an Advisor in September Mart Kivine joined the office as an Advisor in January Markus Sovala joined the office as an Advisor in January 2011, replacing Tuuli Juurikkala, Advisor, who left in January Fridrik Jonsson joined the office as an Advisor in January 2011 replacing Anna Katrin Vilhjalmsdottir, Advisor, who left in January 2011.

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19 Annex C.1: IFC Selected Financial Data * * * Excluding unrealized gains and losses.