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    Nordic-Baltic Constituency Office to the Board of the World Bank Group Annual Report 2010 Highlights from the Financial Year July 1, 2009 – June 30, 2010 September 2010

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    Foreword Last fiscal year (mid 2009-mid 2010) was eventful and challenging for the World Bank Group and its share- holders. Commitments reached a new record high of USD 72 bn, 23 % higher than the previous year. IBRD lending at USD 44 bn was three times higher than pre-crisis levels and IDA commitments were at an all time high at USD 14.5 bn. At the Spring meetings in April 2010 an important package of decisions were endorsed by shareholders. First, a General Capital Increase (GCI) of USD 58 bn was approved for the Bank. Second, and as a prerequisite for the GCI, a new strategy for the WBG was endorsed. It continues to stress poverty reduction through five fo- cus areas; targeting the poor and vulnerable, creating opportunities for growth, promoting global collective action, strengthening governance and preparing for crises, based on the Bank’s comparative advantage as a global institution. Third, the internal reform agenda was given a renewed impetus, to make the WBG more results oriented, open, flexible and more responsive to clients’ needs. Continued decentralization, invest- ment lending reform and a new access to information policy are part of this agenda. Fourth, a milestone de- cision related to improved governance was taken with the second phase of the so called voice reform, shift- ing 3.1 % of voting shares from developed to developing countries, resulting in a total shift of 4.6 % of voting power since 2008, bringing developing countries’ voting share to 47 % in IBRD. The shift will take place through a Selective Capital Increase (SCI) of USD 28 bn. IFC’s commitments have increased dramatically in recent years and the Corporation has been flexible and innovative in response to the global economic crisis. Shareholders decided on a more modest future growth rate of around 6 % which does not necessitate a GCI. A SCI of USD 200 mn was endorsed to shift voting pow- er to developing countries by 6 %, which brings their voting power to 39 % in IFC. These are historic and transformative decisions that will shape the World Bank Group for the coming years. Key moving ahead is obviously that commitments will be translated into implementation and action. Crucial is also that the Bank maintains its focus on fighting poverty, both in low- and middle income countries, thus doing its part to assist developing countries reaching the Millennium Development Goals. The Nordic-Baltic shareholders have an important role in holding Bank management accountable on these two dimensions. Similarly, the Nordic-Baltic Constituency has a key role in advancing the work of the World Bank Group in critical areas such as Gender, Climate Change, and assisting Fragile and Conflict Affected States. One of our countries, Latvia, returned to the Bank to borrow last year and the Bank’s support underpinned important reforms that are being undertaken in Latvia. Executive Directors as well as the President paid visits to Latvia to discuss the effects of the crisis, reforms and cooperation with the WBG. Finally, the Swedish EU Presidency during the second half of 2009 gave us responsibility to coordinate Euro- pean positions in the Board, including on some divisive and difficult issues, like voice reform. Anna Brandt Executive Director for Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden

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    Contents 1 The 2010 Reform Package and its Implementation .................................................................................................. 1 1.1 Revising Strategic Directions .............................................................................................................................. 1 1.2 Voting Share Reform – IBRD and IFC.................................................................................................................. 1 1.3 Strengthening the Capital Base of IBRD and IFC ................................................................................................ 2 1.4 Corporate Governance and Internal Reforms, Including Public Information .................................................... 3 2. Gender Mainstreaming and Gender Action Plan – Revision and New Phase .......................................................... 4 3. Climate Change – Implementing the Strategic Framework, Scaling up Investments and Preparing for Cancun/COP16 ............................................................................................................................................................. 5 4 The World Bank’s Contribution Towards the Millennium Development Goals (MDGs) .......................................... 7 5. IBRD Lending, Loan Pricing, Allocation of Income and Budget ................................................................................ 8 6 IDA: Crisis Response Window and New Replenishment ........................................................................................... 9 6.1 IDA16 Replenishment......................................................................................................................................... 9 6.2 IDA 15 Pilot Crisis Response Window .............................................................................................................. 10 7. IFC – Main Trends and Policy Developments ......................................................................................................... 11 8. MIGA – Main Trends and Policy Developments..................................................................................................... 12 Boxes Box A: World Development Report 2011 – Conflict, Security and Development……………………………………….………….5 Box B: USD 3.75 bn IBRD Loan to South Africa’s Power Utility ESKOM………………………………………………………………….6 Box C: Trust Fund Management Framework…………………………………………………………………………………………………………9 Box D: World Bank Assistance and Debt Cancellation to Haiti after the 2010 Earth Quake………………………………….10 Box E: Rapid Social Response Multi-Donor Trust Fund…………………………………………………………………………………………11 Box F: IFC Performance and Standards Review……………………………………………………………………………………………………12 Annexes Annex A – The World Bank and the Nordic-Baltic Office at a Glance Annex B – IBRD Five-Year Summary of Selected Financial Data for Financial Year2010 Annex C – Selected Financial Data of IFC for Financial Year 2010 Annex D – Regional Breakdown of New Commitments and Disbursements Annex E – Nordic and Baltic Staff in WBG Annex F – Procurement from Nordic and Baltic countries, Financial Years 2008-10

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    Abbreviations AFR World Bank Africa Department/Region AMC Asset Management Company CAS Country Assistance Strategy CIF Climate Investment Funds COGAM Committee on Governance and Administrative Matters CPF Carbon Partnership Facility CRW Crisis Response Window CTF Clean Technology Fund DPL Development Policy Lending DTC Developing and Transition Countries EAP World Bank East Asia Pacific Department/Region ECA World Bank Europe and Central Asia Deparment/Region ECOSOC United Nations Economic and Social Council EIU Economist Intelligence Unit FCPF Forest Carbon Partnership Facility FIP Forest Investment Program FY Financial Year of the World Bank Group (1 July – 30 June) GAP Gender Action Plan GCI General Capital Increase GMR Global Monitoring Report IBRD International Bank for Reconstruction and Development IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation IFI International Financial Institution IMF International Monetary Fund LAC World Bank Latin America and Caribbean Department/Region LIC Low Income Countries MENA World Bank Middle East and North Africa Department/Region MDB Multilateral Development Bank MDG Millennium Development Goals MIC Middle-Income Country MIGA Multilateral Investment Guarantee Agency MSME Micro Small and Medium-size Enterprises 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 RSR-MDTF Rapid Social Response Multi-Donor Trust Fund 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 UNODC United Nations Office on Drugs and Crime WBG World Bank Group WDR World Development Report WEOI Women’s Economic Opportunity Index

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    1 The 2010 Reform Package and its Implementation 1.1 Revising Strategic Directions A revised strategy for the World Bank Group, WBG titled “New World, New World Bank Group: Post-Crisis Direc- tions” was adopted by the Development Committee on April 25, 2010. After the worst economic crisis in decades, the WBG embarked on fundamental reforms, including the formula- tion of a Post-Crisis Directions Strategy to be better equipped to address the development challenges of the 21st Century and its overarching objective of overcoming poverty. At the Development Committee meeting in Istanbul, the Bank was tasked with presenting a new strategy for review at the Spring Meetings in April 2010 as part of an overall reform package with linkages to the, at the time, on-going discussions on adjustments of voting shares, a general capital increase and internal reforms. The purpose of the exercise was to help the Bank set clear priorities, sharpen the comparative advantages, ex- panding complementarities with other institutions, and put its strategic focus where it can add most value. As a global institution, the Bank is uniquely positioned to reach across countries and regions to tackle global issues. The Bank brings worldwide catalytic and convening power along with global best practice services and standards. World-class risk management and an ability to significantly leverage resources and serve as an incubator for inno- vations in development financing are key features along with its knowledge and expertise gained globally, but cus- tomized locally. The core mission of the WBG remains overcoming poverty through growth. The Post-Crisis Directions identify five strategic priorities: • Targeting the poor and vulnerable, especially in Sub-Saharan Africa. The WBG will intensify efforts to reach the poor where ever they are, and address in particular the vulnerabilities of women and children and the challenges of the “bottom billion” in conflict-affected countries. • Creating opportunities for growth. Sustained growth is the most robust and durable path out of poverty, and the WBG will focus on improving the business climate and public spending in order to create jobs and foster inclusive growth. • Promoting global collective action. The WBG will bring its global competence and leverage to global issues like climate change, trade, food security, energy, water, and health. • Strengthening governance. The WBG places good governance at the heart of development programs and projects with a focus on local ownership and capacity-building, as well as combating corruption. • Preparing for crises. The WBG will help countries lay the groundwork for crisis response before it is needed. Aside from the five strategic priorities, the strategy emphasizes complementarity with other MDBs and the UN, where the WBG is uniquely positioned in “bringing the world to the regions” by building on its global reach and experience in order to disseminate innovation and knowledge across regions. There will be a clearer division of labor between MDBs in certain areas, but the division of labor between the World Bank and the Regional Devel- opment Banks will mainly be driven by client needs. The revised strategy also calls for the Bank to exercise in- creased selectivity while maintaining operations across regions, sectors and client groups to preserve its global knowledge. A selectivity framework will be developed to facilitate this inherently difficult task. 1.2 Voting Share Reform – IBRD and IFC After intensive discussions during FY2010 the second phase of the reform to adjust voting shares in favor of De- veloping and Transition Countries (DTCs) – the Voice and Representation reform - was endorsed during the Spring Meetings in April 2010. The Development Committee agreed on a shift in voting power to the DTCs of 3.13 per- cent through a realignment of shares. This represents a total shift of 4.59 percent, including the first phase of the Voice reform, agreed upon in 2008. The DTCs’ voting power is thereby brought to a total of 47.19 percent in IBRD. The 2010 realignment will be implemented through a selective capital increase (SCI), amounting to USD 27.8 bn with a paid-in capital of USD 1.6 bn. 1

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    As part of the Voice reforms Sub-Saharan African countries are provided a third Chair in the now 25 member Board to be effective from November 2010. Through the Voice reform in particular middle income countries have strengthened their position (such as China, Brazil, Mexico, India, Turkey and South Korea) or maintained their voting power (such as Saudi Arabia, Kuwait, Russia Argentina, Chile and Peru). Europe and Japan basically paid for the shift, while the US did not contribute to the second phase. For the Nordic Baltic Constituency the voting power will diminish from a total of 3.33 percent to 3.08 percent (from both phase one and two of the reform), which in relative terms is similar to most other de- veloped European countries. Unfortunately, a number of smallest, poorest members lost some of the voting pow- er they had gained in the first phase of the Voice Reform in the second round, which was not the intention of the reform process. See more details in www.worldbank.org/voiceibrd. It remains to be seen whether the reform will change the dynamics of decision making in the WBG to a greater bias towards the larger middle income countries’, rather than the smaller middle income and poorest countries’ particular interests and needs. The Nordic Baltic Constituency has for long been an advocate of improving the participation of DTCs in the IMF and the World Bank. While being supportive of the second phase of the Voice reform the Nordic and Baltic Coun- tries were not satisfied with the process and methodology, and therefore insisted that the 2010 shareholding rea- lignment and its elements were the basis for the 2010 realignment only. Work will have to continue to develop a transparent rules-based methodology for further Voice reform. Reviews will take place every five years starting in 2015. As a first step of the reform to enhance voice and participation of DTCs in IFC, it was decided to increase basic votes for all countries and to have a Special Capital Increase of USD 200 mn. This will result in a shift in voting power of 6.07% to the DTCs bringing their voting power to 39.48%. The Nordic Baltic Constituency’s voting power will diminish from 3.59 to 3.36 %. 1.3 Strengthening the Capital Base of IBRD and IFC During the economic and financial crisis the WBG has provided an unprecedented support to Developing and Transition Countries. In FY 2010 commitments reached more than USD 72 bn (see also Annexes B and C). Entering the crisis the IBRD and IFC were well capitalized and able to respond quickly to the needs of DTCs. However, given the tripling of lending, measures to maintain the financial sustainability of IBRD and IFC over the forthcoming dec- ade were discussed during FY 2010. At the Spring Meetings 2010 a financial package for IBRD was endorsed by Governors, including a general capital increase (GCI) and a selective capital increase (SCI) (see Chapter 1.2). The GCI amounts to USD 58.4 bn with paid- in capital of USD 3.5 bn - the remainder being callable capital. The GCI and the SCI, if taken together, amount to USD 86.2 bn, raising the authorized capital of IBRD to USD 276.1 bn. The paid-in capital will contribute to IBRD’s usable equity, and thereby sustain lending at higher than normal le- vels during FY 2011-2012, and at an estimated post-crisis level of USD 15 bn annually during FY 2013-2019. In addition, and part of the financial package to strengthen the financial sustainability of the IBRD, a reform of loan maturity terms, possible adjustments of loan pricing, as well as income allocation principles were approved by the Board of Executive Directors in June 2010. Continued World Bank budget discipline is also part and parcel of the package (see Chapter 5). IFC is operating in a riskier and more volatile business environment, therefore the development of the capital base of the Corporation is more difficult to assess and project. IFC did not escape the first impact of the financial crisis with its net loss in FY09 of USD 151 million. At the same time, IFC increased its total commitments from USD 25,4 bn in FY07 to USD 38,7 bn in FY10, and continued transfers of resources to IDA according to a previous pledge. 2

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    As part of the reform package agreed at the Spring Meetings 2010 the Development Committee endorsed as mentioned above a Selective Capital Increase in the amount of USD 200 mn for IFC. In addition, IFC plans to build up its capital base by retaining a larger part of its net surplus. This may compete with wishes of some members to maximize direct transfers of net surplus to IDA. The Nordic and Baltic countries have supported IFC expansion in its private sector activities in IDA countries, and would be concerned, if direct transfers of large parts of IFC’s sur- plus to IDA, would endanger this. 1.4 Corporate Governance and Internal Reforms, Including Public Information At the Annual Meetings in 2009, the Development Committee acknowledged that continuing improvements in corporate governance, accountability and operational effectiveness of the World Bank Group are essential for confronting the development challenges of the 21st century. Internal corporate governance focuses on share- holders’ oversight and policy guidance provided through the Board, implemented by Management and ultimately aimed at improving the Bank’s responsiveness and adaptability to its members’ needs. Actions to improve Board effectiveness and oversight have continued in FY 2010. The Board has reviewed the quarterly reporting of World Bank Group financial and operational outcomes, through so-called Flash reports on major trends of the World Bank Group to facilitate early detection and intervention. A self-assessment was carried out of five oversight agencies and accountability units in order to streamline their activities.1 The self-assessment provided valuable insights on potential overlaps and gaps. Subsequently, an external review will be undertaken and provide suggestions for improvements. To strengthen the Board’s strategic role and reduce detailed delibera- tions of minor activities, the Board agreed in 2010 to pre-approve a slice of a given country program, when the country strategy was discussed in the Board. To enhance efficiency, strengthen accountability, outreach and strategic focus of the Annual Meetings, as well as improving cost efficiency, a decision has been made to compress and modernize their format, already from the Annual Meetings in October 2010. Deliberations on possible reforms of the Development Committee have begun with the aim of improving shareholders’ engagement and oversight. In April 2010 the Development Committee reiterated the importance of an open, merit-based and transparent process for the selection of the President of the World Bank Group. 2 A Working Group on the Selection of Presi- dent/Senior Management, lead by the Nordic-Baltic Executive Director Anna Brandt, was established in late FY2010. Moreover, a Working Group on evaluations by the Board of the President/Senior Management and by the President/Senior Management of the Board (Dual Performance Feedback) has been established also in late FY2010. Both Working Groups will report to the relevant Board Committee, (COGAM) during FY2011. Turning to Internal Reforms, the Bank’s response to the crisis has shown how the WBG can work better and faster to address challenges developing countries face in dealing with the crises. It also underscored the broad range of reforms needed to build upon the WBG’s strengths and comparative advantages to enhance its efforts to over- come poverty. The internal reforms agenda 3 is designed to achieve that outcome. The agenda’s series of mutually reinforcing initiatives recognizes that to better respond to both long-term development challenges and changes brought about by the global economic crisis, the Bank Group must become more effective, efficient and account- able. The WBG internal reform agenda has the following main elements: (1) modernizing of services through Invest- ment Lending Reform and a new Knowledge Strategy; (2) enhancing Service Delivery, i.a. through decentraliza- tion, and refining the WBG matrix structure; (3) sharpening the WBR’s results focus, including through the devel- opment of a corporate scorecard; and (4) supporting Reforms in human resources, information technology and 1 They are Internal Audit Vice Presidency (IAD), Independent Evaluation Group (IEG), Inspection Panel (IPN), the Integrity Vice Presidency (INT) and the counterpart in IFC/MIGA, the Compliance Adviser/Ombudsman (CAO). The IEG and the IPN report to the Board, while INT, IAD and CAO report to the President. 2 The President of the World Bank Group holds his or her position for five years, and the current term ends in 2012. 3 More information about the reform agenda at (http://reformsagenda.worldbank.org/) 3

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    the budgeting process. An Internal Reforms Secretariat has been established to monitor, advise, and report on the progress in implementing the reform agenda. In addition, on July 1, 2010 the World Bank introduced a new Access to Information Policy, making more informa- tion available to the public than ever before, especially on projects under preparation and implementation and the Board’s actions. The overall guideline is that all information is public, if it is not covered by a specific excep- tion. The policy is based on five principles: (1) maximizing access to information; (2) setting out a clear list of ex- ceptions; (3) safeguarding the deliberative process; (4) providing clear procedures for making information availa- ble; and (5) recognizing requesters’ right to an appeals process. 4 The new policy has put the World Bank at the forefront of other IFIs with regard to setting high standards of transparency, openness and accountability. 2. Gender Mainstreaming and Gender Action Plan – Revision and New Phase In FY2010 gender has been one of the areas in which the Nordic-Baltic Chair has played a leading role in Board discussions. In October 2009, the WBG Independent Evaluation Group (IEG) presented to the Board its report on the evaluation of the Bank’s gender policy implementation for the period of 2002-2008. The IEG evaluation found the Bank’s current gender policy to be sound and that the attention to gender mainstreaming in Bank’s support improved both in quantity and scope since the 1990s. However, according to IEG, the implementation of the 2001 Bank’s gender strategy in the latter part of the evaluation period (2006-2008) weakened. Therefore additional measures that focus on institutional arrangements within the Bank to ensure greater accountability for gender integration into the Bank’s work are needed, as well as adequate financing for gender related activities and better integration of gender into Country Assistance Strategies (CASs). The Board strongly concurred with IEG’s recom- mendations and requested Bank Management to be proactive in ensuring proper implementation of the Bank’s gender mainstreaming policy. In June 2010, Management presented to the Board the Gender Action Plan (GAP) 5 Third Year Progress Report. During its third year of implementation the GAP has continued to support work to integrate women’s economic empowerment issues in the Bank’s analytical work and policy dialogue, lending and non-lending operations and technical assistance. A total of 260 initiatives have been supported, the majority of them selected on a competi- tive basis among suggestions from Staff. Most initiatives fall under the GAP’s four thematic areas: labor market activities, including the Adolescent Girls Initiative (AGI) 6, land and agriculture, private sector development, and infrastructure. The top regional receivers are Africa and South Asia with 40% and 17% respectively. Nearly two thirds of the GAP portfolio is dedicated to work in IDA countries. Together with the GAP progress report, Management submitted to the Board a Three-Year Road Map for Gender Mainstreaming (2011-2013), which has been developed to incorporate lessons learned from the GAP, to respond to the IEG recommendations on gender and development, and to guide the Bank’s work towards real transforma- tional change with respect to gender mainstreaming for the next three years. More specifically, the GAP Transi- tion Plan sets out to improve gender coverage of the Bank’s work in key areas, such as increasing women’s eco- nomic empowerment, lowering maternal mortality, reducing gender disparity in education and social protection, and generating gender related data. The Transition Plan will have a robust results framework with three levels of indicators and targets which should help to strengthen Management’s accountability for gender mainstreaming. It will focus on strengthening gender integration into CASs, as well as improving dialogue with client countries. Last, but not least, the financing of the GAP Transition Plan, unlike the GAP’s financing, will be integrated into the 4 For more information about the World Bank’s Access to Information Policy please see the following website: http://worldbank.org/wbaccess 5 The World Bank Group Action Plan “Gender Equality as Smart Economics”, launched in 2007, aims to intensify the Bank’s efforts to promote women’s economic empowerment in the following economic sectors: labor, financial and agricultural markets and infrastructure. 6 The Adolescent Girls Initiative, launched by President Zoellick in October 2008, prioritizes job skills training for young wom- en to enhance their participation in the labor force. 4

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    Bank’s core budget with only limited activities to be financed through trust funds. The Board strongly welcomed the progress made in implementing the GAP and endorsed the proposed Three-Year Road Map. In terms of the Bank’s efforts to improve the collection of gender-disaggregated data two initiatives were launched in FY10. In March 2010 the WBG published a report “Women, Business and the Law 2010” that looks at differences in formal laws and institutions affecting women’s prospects as entrepreneurs and employees 7. On July 1, 2010 the Economist Intelligence Unit (EIU) launched the Women’s Economic Opportunity Index (WEOI) and its accompanying report. The WEOI uses quantitative and qualitative indicators to measure specific indicators of the business environment for women employees and entrepreneurs in 113 countries. The publication was commis- sioned and funded by the GAP. The “Women, Business and the Law 2010” report was well received by the Board as it measures the gender gap in policy variables using quantitative and objective data, whereas the WEOI was somewhat controversial due to its comparative nature. In FY10 donors suggested making gender one of the special themes for IDA 16. This designation is expected to raise the importance of gender integration in Bank operations and improve the monitoring of IDA-funded opera- tions to measure gender results, as well as, ultimately, accelerate progress towards gender related MDGs. A significant development in promoting gender mainstreaming is the decision that the 2012 World Development Report (WDR) – the Bank’s flagship development report – will focus on gender and development. The report aims at bridging knowledge gaps on the links between gender and development, and drawing implications for policy design. The 2012 WDR is to be published in the latter half of 2011. Box A: World Development Report 2011 - Conflict, Security and Development The establishment of the Bretton Woods institutions in the aftermath of the Second World War reflected a belief that recon- structing countries devastated by warfare was an international responsibility. The World Bank has thus, since its beginnings, seen violent conflict as a profound development challenge and it continues to remain a major development concern affecting World Bank clients across all regions and income levels. The goal of the WDR 2011 is to contribute concrete, practical suggestions to the debate on how to address conflict and fragili- ty. The report will i.a. look into the trends, causes and consequences of conflict;, the key ingredients of successful gover- nance; the role, the strengths and weaknesses of international actions intended to help states affected by conflict; gaps in policy and implementation; and finally, propose remedies. Since solutions involve cooperation between a wide variety of ac- tors at local, national, regional and global levels, the WDR process comprises a considerable effort to consult with a range of different players and communities. IDA countries are especially affected by conflict with over a quarter of IDA-eligible states experiencing conflict. Many others are considered fragile, and thereby prone to conflict. The poverty rates in the conflict-affected countries average at 54% compared to 22% for low income countries as a whole. IDA Deputies have accordingly asked that the findings of the WDR 2011 feed into the IDA’s framework for fragile states. The WDR 2011 will be presented to the Board of the World Bank in De- cember 2010 and published in February 2011. In a six months period thereafter, the WDR11 Team will make a number of outreach events on the analyses and recommendations of the Report. 3. Climate Change – Implementing the Strategic Framework, Scaling up Invest- ments and Preparing for Cancun/COP16 After the World Bank Group Strategic Framework for Development and Climate Change was endorsed late 2008, the Bank has continued to gear up its climate change-related operations, based on strong client demand and availability of donor funding. Green growth is high on client governments’ agenda and the WBG responds accor- dingly. 7 The report presents a set of indicators based on the data from the on-line Gender Law Library, launched in October 2008 as part of the Doing Business Gender Project. 5

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    IFC, MIGA and all World Bank Regions have developed climate change strategies or business plans and integration of climate change issues into new sector strategies is under preparation. In FY10, approximately 88% (30 out of 34) of new country assistance or partnership strategies addressed climate-related issues. The WBG has shown leadership through knowledge products and setting up and leveraging major funds to work both on mitigation and adaptation. Examples include the World Development Report 2010 on Development and Climate Change and a major study on the economics of adaptation, a number of new financing instruments including Green Bonds, growing green energy portfolio, sizable environmental and climate change development policy loans, climate change as a theme in IDA16 replenishment, and the setup and rollout of the Climate Investment Funds (CIF). WBG commitments into renewable energy and energy efficiency (RE/EE) amounted to USD 3.4 bn in FY09, which marked an 88% increase in relation to FY08. IFC’s climate-friendly investments, including RE/EE and related manu- facturing, exceeded USD 1 bn in FY09. (Figures for FY10 are yet to be published; the positive trend is likely to con- tinue). IFC has established a Climate Business Unit to coordinate climate change-related investments and Advisory Services across its business lines. The WBG has played a pioneering role in operationalizing market based mechan- isms such as carbon finance. The Carbon Partnership Facility (CPF) and the Forest Carbon Partnership Facility (FCPF) are now both operational. The World Bank became a Multilateral Implementing Entity for the Adaptation Fund under the Kyoto Protocol, which is primarily an instrument of direct access. The over USD 6 bn CIF resources have been particularly successful in leveraging funding from other sources and rolling it out fast. Clean Technology Fund (CTF) has approved 13 investment plans. Under the Strategic Climate Fund, the Pilot Program on Climate Resilience (PPCR), Forest Investment Program (FIP) and the Scaling-up Renew- able Energy Program (SREP) in Low Income Countries are all up and running. As of spring 2010, USD 4.3 bn of CTF funds had leveraged an estimated USD 36 bn of co-financing. The USD 540 mn FIP supports developing countries to reduce deforestation and forest degradation and promote sustainable forest management that leads to emis- sion reductions and the protection of carbon reservoirs (REDD+). Not a party to the UNFCCC negotiations, the World Bank participated in the December 2009 COP15 in Copenha- gen positioning itself to be useful and of service, if so requested, both at the conference and in a future climate change financing architecture. It continues with the same approach toward the COP16 in Cancun in late 2010. The CIF and other climate financing experience of the WBG, together with the other MDBs, can indeed be drawn upon by the High Level Panel on Climate Change Financing. The WBG is, however, aware of sensitivities around the is- sue and is not pushing the issue. Looking forward, a concept note for a new Energy Strategy has gone through an extensive first round of consulta- tions in early 2010 and the Strategy is expected to be ready in 2011. Setting percentage targets for renewable energy and energy efficiency is a challenge partly due to the lumpy nature of energy investments. In addition, a large share of the Bank’s energy investments goes into transmission, which is difficult to categorize 8. The World Bank is currently piloting quantitative coding of investment flows toward climate co-benefits, to improve on the OECD Rio Markers for Mitigation and Adaptation. A new position of high-level Special Envoy for Climate Change of the WBG was created in mid 2010. At the same time, Danish national Inger Andersen has been appointed Vice President of the Bank’s Sustainable Development Network that is i.a. responsible for Climate Change. Useful information on the WBG’s handling of Climate change can be found on: beta.worldbank.org/climatechange and www.climateinvestmentfunds.org Box B: USD 3.75 bn IBRD Loan to South Africa’s Power Utility ESKOM In April 2010, the Board approved a complex and controversial IBRD loan in the amount of USD 3.75 billion to South Africa’s power utility ESKOM, providing financing for a coal power plant as well as energy efficiency and renewable solar and wind energy initiatives. The decision was a difficult one, illustrating the practical challenges of balancing affordable increases in electricity access and reliability with sustainability goals thus striving towards greener growth. While South Africa commits 8 Currently, the Bank’s energy portfolio is roughly composed of 1/3 financing of renewable and energy efficiency, 1/3 financ- ing for fossil fuels (mostly gas), and 1/3 transmission. 6

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    itself to long-term CO2 emission reductions, in the short term the gap in energy production could not be met solely from re- newable sources, due to scale and price considerations. The solar power component of the project is, in its current scale, larger than any similar utility in the world to date. Nordic-Baltic countries will closely monitor how the Bank implements its new partnership with South Africa. Mid 2010, the Inspection Panel concluded that a request for inspection by two South African NGOs, on behalf of local communities in the affected areas, meets its eligibility criteria and recommended an inspection, which the Board approved. The project is exceptional by both its nature and scope. Very few investments are envisioned by the World Bank in coal in the years to come, with strict criteria in place, based on the World Bank Group Strategic Framework for Development and Cli- mate Change endorsed in 2008. www.worldbank.org/energy -> projects -> Africa 4 The World Bank’s Contribution Towards the Millennium Development Goals (MDGs) The World Bank has developed a good working relationship with, and provided useful input to, the UN for the preparations of the MDG Summit in New York in September 2010. A Bank-wide internal taskforce has been meet- ing regularly to coordinate the World Bank Group (WBG) engagement towards the Summit. Senior staff partici- pated in ECOSOC’s special session and the High-Level meeting on Financing for Development, as well as other MDGs events. In July 2010 the Board of Executive Directors met informally with the UN Ambassadors from Senegal and Den- mark, who is co-facilitating the negotiations over the Summit’s outcome document. Discussions covered the process towards and intended outcomes of the Summit, as well as the substance of reaching the MDGs by 2015, with concerns such as lack of attention to education, lack of updated data and the contentious issue of shared global responsibility. The World Bank has been provided a platform at the Summit for promoting its contribution to the efforts. There has been solid progress towards reaching the MDGs, but it is well-documented that enormous challenges remain. While some African countries have made substantial progress, many other countries in Africa are quite far from achieving the MDG targets. While the MDG on poverty might still be attainable, most others are further away from being met with progress on the health-related MDGs particularly slow. The global economic crisis has also proved to be a setback for achieving the MDGs, in particular in low-income countries, and despite the commendable efforts of many countries in managing its consequences. However, the crisis response by the World Bank (in close collaboration with other IFIs) has been timely and the increases in IBRD lending and front-loading of IDA resources as well as IDA’s Crisis Response Window have been vital in order to stem further setbacks with respect to the MDGs. There has been a focus on results in the Bank’s contribution to the MDGs. For instance, at an aggregate level in 2005-10, IDA financed projects have trained 1 million additional primary teachers, built 600.000 new classrooms, immunized 13 million children, distributed 28 million treated mosquito nets, trained 400.000 health personnel, built 12.000 community water points, added 334.000 new water connections, and built/rehabilitated 6.000 km of roads. As a follow up to the MDG Summit in September 2010 and as an incentive for a substantive IDA16 reple- nishment (see Chapter 6.1) the WBG is likely to elaborate further on its concrete activities to assist countries meeting the MDGs. The World Bank is playing a key role in preparing and disseminating policy and statistical assessments of MDG progress. This year’s Global Monitoring Report—The MDGs after the Crisis—examines the impact of the worst recession since the Great Depression on poverty and human development outcomes in developing countries. The World Development Indicators and the World Development Report are other corporate flagship reports that con- tribute to the creation and transfer of knowledge that is a key Bank contribution towards the MDGs. 7

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    5. IBRD Lending, Loan Pricing, Allocation of Income and Budget In FY2010 IBRD lending reached new highs at USD 44.2 bn in new commitments in from USD 32.9 in FY2009. Worth noting is that the largest amount of new commitments (more than USD 14 bn) went to the Latin American and Caribbean countries (LAC), followed by USD 10 bn to Europe and Central Asia (ECA) and USD 7 bn to South Asian Region (SAR), or on average 2-3 times higher commitments than before the crisis. It is also noteworthy that the Sub-Saharan African region borrowed more than USD 4 bn from IBRD in new commitments in FY2010 from almost zero before the crisis (see Annex E). As previous years, the concentration ratio of lending remains high. 70% of the total new commitments went to 13 countries even though not all top borrowers were severely affected by the crisis. India was the largest borrower with a combined USD 9 bn of IBRD and IDA lending. India and Mexico alone accounted for almost 30 percent of the total new commitments in IBRD. Other relatively big borrowers in FY2010 were Brazil, Turkey and South Afri- ca; followed by Indonesia, China, Poland, Hungary, Kazakhstan and Colombia. Almost half of the new commit- ments have been provided in the form of Development Policy Loans (DPLs) whereas the two years before the cri- sis IBRD lent almost ¾ as investment lending. Disbursements have increased significantly since the crisis began, reaching almost USD 29 bn in FY2010. FY2010 saw a welcome synchronizing of year-end discussions on the World Bank’s budget, IBRD loan pricing, and allocation of net income of the IBRD. As part of the Spring Meetings package to improve the financial sustainabili- ty of the IBRD 1) principles that link loan pricing to lending related cost coverage were developed, including con- sideration to expected losses; 2) loan maturity limits were restored to the level before 2008 while offering bor- rowers the option to extend the maturity with a premium; and 3) net income allocation principles were developed that, subject to Board decision, place a priority on IDA transfers after ensuring adequate transfers to reserves. 9 Decisions were taken on all three issues at the end of fiscal year discussions. As a result, the FY2010 IBRD loan prices of 54 basis points (the contractual fee and the front-end fee) will not change for FY2011 since it covers lending related costs and expected losses. IBRD’s net income was USD 764 mn, whereof USD 281 mn was allo- cated to the General Reserves, USD 383 mn to IDA and USD 100 mn to the Surplus Account. Moreover, the Single Borrower Limit was increased with USD 1 billion to 17.5 bn, but until further Board deliberation and decision, this will only apply to India. As to the Budget, the Board approved USD1.78 bn for FY2011 IBRD/IDA net administrative budget– flat in real terms - to be managed within a range of +/- 2%. This year’s budget discussions focused on the critical changes to the budget framework and the work program related to the Bank’s post-crisis directions, internal reforms, not least decentralization, and in general the Bank’s ability to still deliver more within the same budget framework. As to the internal distribution of the budget, Regional Units’ budgets are expected to increase in real terms by 0.8% while Network Anchor budgets decline in real terms by 2.3%. Other Operational Unit budgets will increase by around 1.7% and Finance, Administrative, and Corporate units will grow by 0.6% in real terms, reflecting tar- geted budget increases to the units that will play a critical role in implementing internal reforms and their part of the Post-Crisis Directions Strategy. Increased work program selectivity and cost efficiency improvements across the Bank will be necessary to increase budget flexibility and fund unanticipated demands from clients. IFC’s net administrative budget for FY2011 is USD 609 mn – a 1.9% real increase compared to FY2010. IFC’s initial request for a 2.4% real increase was not approved by the Board. The main drivers of the increase were one-off expenses of IFC’s decentralization exercise and IFC’s intention to strengthen its field presence by opening four new offices in IDA countries, as well as new initiatives in the areas of Climate Change and Agribusiness. 9 The agreement included support for IDA transfers at a flat real level until the IBRD returns to the lower end of the capital adequacy range, which is currently the equity to loan (E/L) ratio of 23-27%, expected to be reached in FY2019. The agreement allows for a modest growth in IDA transfers, when the E/L ratio is within the capital adequacy range. 8

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    The Board approved MIGA’s net administrative budget of USD 40 mn – flat in real terms. MIGA's FYll-13 business plan and operational priority areas are fully aligned with the WBG's five key priorities in its post-crisis strategy. In FY11, MIGA plans to continue to focus its budgetary resources towards operations. In terms of country respon- siveness, MIGA will make a special effort in FY11 to develop its support to investors in post-conflict and fragile states and to broaden its outreach globally. Box C: Trust Fund Management Framework Trust funds are an increasingly important vehicle for the WBG to leverage development assistance, and the WBG holds USD 28,5 bn in trust by mid 2010. In October 2007, the Board approved a Trust Fund Management Framework (TFMF) aimed at mainstreaming trust funds into the Bank’s strategies and business processes, i.a. by enhancing the strategic alignment, risk management, and cost efficiency of the trust fund portfolio. In FY10 the Board received an update on the implementation of the TFMF, which has succeeded in better integrating trust funds into Bank business processes and strategies as well as im- proving cost-recovery. The Board, however, also acknowledged that more needed to be done. The Board agreed that there will be a need to build on the progress made since 2007, i.a. by continuing to tackle fragmenta- tion at the country level as well as enhancing corporate accountability, predictability, and the sustainability of the Bank’s trust fund portfolio. This includes carrying out a Bank-wide trust fund consolidation exercise, establishing a more structured approach to donor relations and fundraising within the Bank and ensuring consistency with corporate priorities, improving the integration of trust funds into the Bank budget, as well as achieving greater alignment at the country level by consolidat- ing trust funds around CAS objectives. Furthermore, the integration of trust funds with Bank operational and management systems will be continued. This will include integrating trust funds into the Bank’s Results Agenda and strengthening man- agement information systems and data reporting. Also, in accordance with the new Access to Information Policy, trust fund agreements entered into after July 1, 2010 will be disclosed to the public. Finally, to ensure cost-efficiency and sustainability of the trust fund portfolio, cost-recovery arrangements will be under continued review. 6 IDA: Crisis Response Window and New Replenishment 6.1 IDA16 Replenishment The International Development Association (IDA) is the part of the World Bank that assists the world’s poorest countries. IDA aims to reduce poverty by providing interest-free credits and grants, and it is mainly funded by do- nor contributions. Donor countries replenish IDA on a regular basis and in FY2010-11 the sixteenth replenishment of IDA (IDA 16) is underway. A total of 45 donors made pledges to IDA 15, the previous replenishment, and for IDA 16 five additional countries have shown interest in joining the donor base. The first two meetings on the IDA16 replenishment took place in Paris in March and Bamako in June 2010. At the Paris meeting, country representatives (IDA Deputies) set the agenda for IDA 16 by agreeing on the key strategic issues for the replenishment. The overarching theme of IDA16 will be on development results; whereas the spe- cial themes are fragile and conflict affected countries (FCCs), gender, and climate change as well as crisis re- sponse. Discussions on the potential financing framework for IDA16 were started in Bamako. Participants generally welcomed IDA’s internal resource mobilization efforts, including transfers from IBRD’s net surplus. The meet- ing also considered IDA’s long term financial capacity and financial instruments, including proposals to har- den lending terms for countries receiving both IDA and IBRD resources, and accelerating repayments from countries that due to increased GNI per capita graduate out of IDA. Participants considered the implementation framework for IDA and in this context, welcomed plans to further strengthen IDA Results Measurement System, and encouraged Management to explore additional ways to assess IDA performance, while maintaining country ownership and accountability. Deputies made a number of decisions in Bamako, including agreeing to: (i) introducing a case-by-case approach to extending the phase-out for post-conflict and re-engaging countries during IDA16; (ii) relaxing the requirements 9

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    for IDA regional financing to allow for projects with only two countries, when at least one is a FCC, and (iii) elimi- nating the maximum per capita allocation ceiling for small states and raising their base allocation. Furthermore, participants took a closer look at the possibility of creating a permanent crisis response window within IDA with a view to enhancing IDA’s capacity to respond to severe external crises in a timely manner and with greater transparency and predictability (see below). The WBG expects to conclude the IDA16 replenishment negotiations by the end of 2010 after meetings in October and December. However, in the midst of fiscal pressures in traditional donor countries, it will require a major commitment from existing and not least new and non-traditional donors to reach a level for IDA16 that will strengthen the WBG’s possibilities to assist its poorest member countries. Box D: World Bank Assistance and Debt Cancellation to Haiti after the 2010 Earthquake Since the January 2010 earthquake, which took 300 000 lives and displaced 1.2 million people, the World Bank has helped assess the socioeconomic impact of the tragedy, prepared emergency infrastructure, education and community-based projects to assist the Haitian population, and provided emergency funding to the private sector through IFC. Damages and losses were evaluated at USD 7.9 bn or around 120 percent of GDP by the Post-Disaster Needs Assessment conducted by the World Bank and the United Nations and other donors, under Government leadership. The international community pledged over USD 9 bn of assistance in support of the Government Action Plan for Reconstruction and National Development, which aims to use reconstruction as an opportunity to spur sustainable development. More than half of WBG’s first year post earthquake recovery assistance of USD 479 mn has been provided; including the can- cellation of Haiti’s remaining USD 39 mn debt to IDA. At the request of the Government of Haiti, the World Bank established the Haiti Reconstruction Fund in partnership with the Inter-American Development Bank and the United Nations. The Fund is administered by IDA as Trustee. The Government, through the Interim Haiti Reconstruction Commission, sets the Fund’s priorities. Of the USD 500 million pledged to the Fund, th USD 98 mn has been confirmed. The first request for financing from the Fund was made by the Government on June 17 , 2010 and approved the same day by the Fund Steering Committee. See www.worldbank.org/haiti , www.haitireconstructionfund.org 6.2 IDA 15 Pilot Crisis Response Window Late 2009 the Board approved a proposal to create a pilot Crisis Response Window, CRW in IDA. Its duration was set for 18 months, ending in June 2011. The funding of the pilot CRW amounted to about US$1.5 billion, mostly from the redeployment of IDA internal resources, including set-asides for arrears clearance and extraordinary in- vestment income from IDA resources, as well as donor contributions. Until mid 2010, 88% of the total amount has been committed to the 56 eligible, non-oil exporting IDA-only coun- tries. The pilot CRW resources are allocated in two stages. First, 85 % of the total CRW resources are allocated directly to countries based on quantitative indicators of crisis impact and pre-existing needs. The remaining 15% are then allocated by the World Bank’s Regional Departments to countries with highest pre-existing needs and large impacts of the crisis. Resources that were not committed by end FY10 will be reallocated to countries that have the highest demonstrable, unmet, crisis-related needs and the capacity to use additional funds for this pur- pose effectively. CRW resources are being delivered using a wide array of Bank instruments: 22% of the resources have been committed through development policy operations, new investment operations count for 34% of resources, and topping up of existing operations accounts for the rest. Staff was encouraged to give priority to protecting core spending on health, education, social safety nets, infrastructure and agriculture; and to managing the poverty, social and economic impact of the crises. Accordingly, the social sectors and economic management are the more dominant parts of the portfolio. Also of high importance to staff when committing resources was to ensure quick delivery and effective mitigation of the crisis. Going forward towards a possible permanent CRW under IDA 16 it will be important to incorporate the lessons learnt from the pilot CRW. 10

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    Box E: Rapid Social Response Multi-Donor Trust Fund RSR-MDTF (Rapid Social Response Multi-Donor Trust Fund) was established in December 2009 with contributions from Russia (USD 50 million pledged, 35 million paid-in) and Norway (USD 8.5 million pledged; paid-in). It aims to safeguard lives and live- lihoods, during and after the global crises, by promoting social protection measures. Most low-income countries still lack ba- sic foundations and are often unable to fully absorb and benefit from the additional financial resources provided on an emer- gency basis. RSR-MDTF supports low-income countries in building their social protection systems, institutions and know- ledge/information management. The program builds on lessons learned from the success of safety net programs, particularly in middle income countries. The demand for RSR-MDTF funding is very strong. Eighteen projects have been supported with USD 24 mn in early 2010. In a second round, 32 proposals were submitted in the total amount of USD 40 million to compete for USD 14 million available funds. RSR-MDTF is playing a critical role in helping low-income countries cope with the crisis and in ensuring success of the IDA Crisis Window. More information about project portfolio can be found at http://siteresources.worldbank.org/SOCIALPROTECTION/Resources/280558-1254328646148/RSR- MDTF_Activity_Report_May2010_EXT.pdf?resourceurlname=RSR-MDTF_Activity_Report_May2010_EXT.pdf. 7. IFC – Main Trends and Policy Developments IFC showed an impressive income rebound during FY10 as compared to the previous year. The acceleration of business volumes at the closing months of the fiscal year, and better than expected performance of IFC’s equity portfolio, are encouraging signs of recovery especially in the financial markets of Low and Middle Income coun- tries. IFC’s ongoing activities in redesigning its structure and decentralizing the organization indicate the Corpora- tion’s ambition to stay ahead of the curve and be relevant to its partners. IFC’s investment commitments in FY10 totaled USD 12.7 bn, an increase of 20 % over the previous year. Dis- bursements in FY10 totaled USD 6.8 bn, an increase of 20 % compared to FY09. In addition, IFC has mobilized re- sources in the amount of USD 5.4 bn in FY10 - an increase of 36 % over FY09. The Corporation invested in more than 500 projects, an 18 % increase from FY09 with the poorest countries ac- counting for half of the investments—255 projects. Commitments in IDA countries totaled USD 4.9 bn. In Sub- Saharan Africa, IFC investments totaled USD 2.3 bn, accounting for 18 % of IFC’s commitments for the year. Mid 2010 the Advisory Services portfolio included 736 projects at a value of USD 859 mn, which includes 226 new projects approved in FY10. Around 30 donor partners contributed to IFC’s advisory work in public-private partner- ships in 86 countries. Constituency countries are financing several programs. The emerging third pillar of IFC (besides Investment and Advisory Services), the Asset Management Company, AMC came into operation, and as of June 30, 2010, AMC had approximately USD 4 bn of assets under manage- ment in two funds: the IFC Capitalization Fund and the IFC African, Latin American and Caribbean Fund (the ALAC Fund). 10 IFC reported a net income of USD 1.7 bn in FY10, as compared with a net loss of USD151 mn in FY09. This enabled IFC to transfer the remaining amount of its total pledge to IDA15. The return on average net worth at the end of FY10 was 11.8 % compared to negative 3 % at the end of FY09. At the end of FY10, IFC’s total available resources adequately covered its requirement, but going forward the Corporation is facing increasing capital constraints. 10 The USD 3 bn IFC Capitalization Fund invests in commercial banks in developing countries that are systemic for their local economies. The fund is jointly supported by a USD 2 bn commitment from the Japan Bank for International Cooperation, and a USD 1 bn commitment from IFC. The ALAC Fund was launched in April 2010 and has investment commitments totaling USD 950 mn from IFC, Dutch pension fund manager PGGM, Korea Investment Corporation, the State Oil Fund of the Republic of Azerbaijan, the United Nations Joint Staff Pension Fund, and a fund investor from Saudi Arabia. 11

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    In 2010 the Corporation’s Management under Executive Vice President Lars Thunell has further strengthened IFC’s decentralization with an initiative known as “IFC 2013”. The initiative foresees establishing regional opera- tion centers offering a full range of services to the client, but also including managerial and prudential functions. The first Center is already established in Istanbul, under the leadership of a regional (ECA+MENA) Vice President who has moved out of Washington DC. Vice President Jyrki Koskelo has been consequently assigned with new strategic and oversight tasks within the Corporation as a Global Industries Vice President in IFC’s headquarters. IFC expanded its Global Trade Finance Program by extending coverage to additional banks and countries in FY10. The program issued USD 3.46 bn in guarantees in FY10, a 44% increase over the previous year. The Global Trade Liquidity Program, launched in 2009 in response to the global financial crisis, financed more than USD 6 bn of trade volume through 4,000 transactions in 40 countries. About 80% of these transactions benefited small and medium businesses; nearly 40% were in low income countries. Upcoming important IFC discussions in the Board are likely to be on IFC’s revision of its Performance Standards (see Box F), IFC’s efforts to strengthen its capital base, and in this connection the Corporation’s transfers to IDA, and its growth rate, both in general, and specifically its business development in IDA countries. Box F: IFC Policy and Performance Standards Review In September 2009, IFC launched a review of its Policy and Performance Standards on Social and Environmental Sustainability in order to incorporate the experiences of clients and feedback from stakeholder into the standards. IFC’s Policy on Social and Environmental Sustainability contains eight performance standards determining the policies that beneficiaries of IFC’s financ- ing have to follow regarding: Assessment and Management of Social and Environmental Risks and Impacts; Labor and Work- ing Conditions; Resource Efficiency and Pollution Prevention; Community Health, Safety, and Security; Land Acquisition and Involuntary Resettlement; Biodiversity Conservation and Sustainable Natural Resource Management; Indigenous Peoples; Cultural Heritage. The review is conducted in three separate consultation phases: • Phase I: September -November 2009 was focused on soliciting stakeholder comments. • Phase II: January - October 2010, IFC redrafted the document, consulted the relevant WBG Board Committee, had pe- riods open for the public to comment on the proposals, and conducted a wide range of outreach events. • Phase III: integrating input from Phase II into the document - will start in November 2010. IFC intends to present a final draft of the Standards to the Board in early 2011. Civil society organizations have pointed at issues such as the need for better integrating human rights, introducing gender and climate change concerns, as well as strengthening the language on indigenous peoples. 8. MIGA – Main Trends and Policy Developments Operating within the landscape of gradual economic recovery, MIGA continued to facilitate foreign direct invest- ment in developing countries. However, due to continuing low capital flows, FY10 business volume increased only marginally compared to last year’s results: in FY10 gross new guarantees issued totaled USD 1.46 bn (USD 1.37 bn in FY09). The size of MIGA’s total gross and net portfolios 11 continued to grow, to a record high of USD 7.7 bn and USD 4.3 bn as of end-FY10. MIGA issued 28 guarantees contracts in 13 countries in FY2010. The regional breakdown of gross new guarantees issued in FY10 was 74% in ECA, 23% in Africa, 2% in Asia, and 1% in LAC. The high concentration of new business in the ECA region was the direct result of a demand pattern centered on the banking sector in Eastern Europe to which MIGA responded through its Financial Sector Initiative 12. In the priority sectors identified in MIGA’s busi- 11 The difference between gross and net exposure being the amount that MIGA has reinsured. 12 The Financial Sector Initiative in Response to the Global Financial Crisis was introduced by MIGA in March 2009. Under this initiative MIGA issues guarantees to financial institutions on cross-border investments into their subsidiaries in emerging and developing countries. 12

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    ness strategy, 13 MIGA issued 19 contracts, or 32% of the total volume of underwriting in FY10. MIGA supported 6 projects in IDA countries and 5 projects in sub-Saharan Africa. In terms of exposure, IDA countries accounted for 32% of the net portfolio as of end-FY10, while coverage for projects in sub-Saharan Africa accounted for 21%. In FY10, MIGA continued focusing on strengthening its business development and outreach efforts. MIGA estab- lished an Agents and Finders program in early FY10 in order to strengthen business outreach. Collaboration with the IFC has also been reinforced in order to mobilize private investment in emerging markets, and MIGA will open an office in Asia. Under a new business development agreement between MIGA and IFC, IFC staff will be able to originate business on behalf of MIGA in all sectors worldwide. To meet the critical needs of its clients and maintain its comparative advantage in the political risk insurance mar- ket, In FY10 MIGA’s Board of Directors discussed and concurred with MIGA’s recommended amendments to its Convention, which will allow MIGA to be even more flexible and expand its range of services. The Board of Gover- nors approved the proposed changes in July 2010. 13 IDA-countries, conflict-affected countries, complex infrastructure projects and south-south investments. 13

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    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 186 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 2015. 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 investing in equity and providing loans to companies in developing countries without sovereign guarantees. The MIGA provides guarantees against political risk to investors in and lenders to developing countries. And 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 24 member Development Committee meeting providing political guidance for the Bank. The daily decision making is delegated from Governors/Ministers to the 24 Executive Directors, representing one or several of the 186 shareholders. The Nordic and Baltic countries are represented at the Executive 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 Anna Brandt (Sweden) Alternate Executive Director Jens Haarlov (Denmark) Senior Advisor Anna Ferry (Sweden) Advisor Senior Advisor Dovile Jasaitiene (Lithuania) Advisor Senior Advisor Ola Storberg (Norway) Senior Advisor  Advisor Anna Katrin Vilhjalmsdottir (Iceland) Senior Advisor  Advisor Tuuli Juurikkala (Finland) Advisor Inguna Dobraja (Latvia) Advisor Mart Kivine (Estonia) Executive Assistant Gun-Maj Ramberg Program Assistant Betsy A. Barrientos The Nordic Baltic Executive Director is a Member of the Committee on Governance and Administrative Matters (COGAM). The Alternate Executive Director is a member of the Subcommittee of the Committee 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 Inguna Dobraja joined the office as an Advisor September 2008. Dovile Jasaitiene joined the office as an Advisor February 2009 and as Sr. Advisor August 2010. Anna Brandt joined the offices as Executive Director August 31, 2009. Anna Katrin Vilhjalmsdottir became Sr. Advisor August, 2008 and Advisor in August 2010. Anna Ferry joined the office as Sr. Advisor in January 2010. Ola Storberg joined as an Advisor in September 2009 and Sr. Advisor in August 2010. Mart Kivine joined the office as an Advisor in January 2010. Ulle Lohmus, Sr. Advisor, left the office in January 2010. Stefan Isaksson, Sr. Advsior, left the office in December 2009.

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    Annex B IBRD Box 1: Five-Year Summary of Selected Financial Data As of or for the years ended June 30 In millions of U.S. dollars, except ratio and return data which are in percentages Lending (Discussed in Section 3) 2010 2009 2008 2007 2006 a Commitments 44,197 32,911 13,468 12,829 14,135 b Gross disbursements 28,855 18,565 10,490 11,055 11,883 b Net disbursements 17,230 8,345 (2,129) (6,193) (1,741) Reported Basis Income statement (Discussed in Section 8) c Operating income 800 572 2,271 1,659 1,740 Board of Governors-Approved Transfers (839) (738) (740) (957) (650) Net (loss) income (1,077) 3,114 1,491 (140) (2,389) Balance sheet (Discussed in Section 8) Total assets 283,010 275,420 233,311 207,601 211,982 Unrestricted cash and investments 36,514 38,284 23,103 22,258 24,929 Net loans outstanding 118,104 103,657 97,268 95,433 100,221 d Borrowings outstanding 128,577 110,040 87,402 87,460 95,491 Total equity 37,555 40,037 41,548 39,796 36,474 Performance Ratios (Discussed in Section 6) Net return on average earning assets Based on operating income 0.54 0.45 1.87 1.34 1.34 Based on net income (0.73) 2.38 1.23 (0.11) (1.84) Return on equity Based on operating income 2.21 1.53 5.96 4.64 5.05 Based on net income (2.88) 8.01 3.73 (0.37) (6.84) e Equity-to-Loans Ratio 29.37 34.28 37.62 35.05 32.96 Fair Value Basis Income statement (Discussed in Section 7) f Net (loss) income (870) (225) 1,135 900 640 Net (loss) income excluding Board of Governors- Approved Transfers (31) 513 1,875 1,857 1,290 Balance sheet (Discussed in Section 7) Total assets 282,842 273,681 234,435 208,312 212,865 Unrestricted cash and investments 36,514 38,284 23,103 22,258 24,929 Net loans outstanding 117,936 101,918 98,392 96,144 101,102 d Borrowings outstanding 128,563 110,022 89,946 89,484 95,258 Total equity 37,401 38,316 40,128 38,483 37,590 Performance Ratios (Discussed in Section 6) g Net return on average earning assets (0.02) 0.40 1.52 1.49 0.98 g Return on equity (0.08) 1.41 4.93 5.21 3.74 e Equity-to-Loans Ratio 29.97 35.00 36.71 34.47 32.44 a. Commitments include guarantee commitments and guarantee facilities. b. Amounts include transactions with the International Finance Corporation (IFC) and capitalized front-end fees. c. Operating income is defined as Income before fair value adjustment on non-trading portfolios, net and Board of Governors- Approved Transfers. d. Borrowings outstanding excludes derivatives. e. As defined by Table 11: Equity used in Equity-to-Loans Ratio. f. Fair value net income on a comprehensive basis comprises of net income (loss) on a reported basis, additional fair value adjustment relating to the loan portfolio, as well as the components of other comprehensive income as reported in the financial statements. g. Ratios exclude Board of Governors-Approved transfers. 2 IBRD MANAGEMENT’S DISCUSSION AND ANALYSIS: JUNE 30, 2010

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    Annex C – Selected Financial Data of IFC Fiscal years 2004-2009, in USD mn 2010 2009 2008 2007 2006 2005 Net Income highlights: Income from loans and guarantees 759 933 1,065 1,062 804 660 Income/loss from equity investments 1,573 (42) 1,688 2,292 1,224 1,365 Income from debt securities 56 79 163 27 7 - Release of (provision for) losses 8 (332) (38) 43 (15) 261 Income from liquid asset trading activities 815 474 473 618 444 358 Charges on borrowings (163) (488) (782) (801) (603) (309) Other income 159 150 113 99 109 86 Admin and other expenses (743) (629) (555) (500) (477) (423) Forex gains (losses) on non-trading activities (82) 10 (39) (5) 6 (7) TA, AS, performance grants etc expenses (110) (135) (150) (96) (90) (38) Net gains (losses) on financial instruments 118 512 109 (99) (145) 61 Income before grants to IDA 1,946 299 2,047 2,640 1,264 2,014 Grants to IDA (200) (450) (500) (150) - - Net income 1,746 (151) 1,547 2,490 1,264 2,014 Balance sheet highlights Total assets 61,075 51,483 49,471 40,599 38,547 39,560 Liquid assets, net of associated derivatives 21,001 17,864 14,622 13,269 12,730 13,325 Loans and equity investments 25,994 22,214 23,319 15,796 12,797 11,489 Borrowings withdrawn and outstanding 31,106 25,711 20,261 15,879 14,967 15,359 Total capital 18,359 16,122 18,261 14,017 11,141 9,798 o/w Undesignated retained earnings 14,307 12,251 12,366 10,604 7,868 6,894 Designated retained earnings 481 791 826 606 852 562 Capital stock 2,369 2,369 2,366 2.365 2.364 2.364 Accumulated other comprehensive income 1,202 711 2,703 442 57 1 Key financial ratios Return on average assets 3,1% (0.3)% 3.4% 6.3% 3.2 % 5.6 % Return on average net worth 10,1% (0.9)% 9.6% 19.8% 12.1 % 22.9 % Cash and liquid investments as % of next three years' estimated net cash requirements 71% 75% 62% 85% 112 % 142 % Debt to equity ratio 2.2:1 2.1:1 1.4:1 1.3:1 1.5:1 1.8:1 Deployable strategic capital 14% 16% 21% 32% na na Loan loss reserves 7,4% 7.4% 5.5% 6.5% 8.3% 9.9% External funding liquidity level 190% 163% 96% 95% n/a n/a

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    Annex D IBRD and IDA Commitments and Disbursements

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    Data as of June 30, 2010 Annex E Nordic and Baltic Staff in WBG Staff Distribution by Organization IBRD IFC MIGA GEF Core Other* Temporary Core Other* Core Other* Temporary Total Denmark 31 17 5 9 6 - 1 1 70 Estonia 3 - - 1 - - - - 4 Finland 11 10 2 8 - 1 1 - 33 Iceland 1 2 - - - - - - 3 Latvia 7 1 1 1 1 1 - - 12 Lithuania 4 - 1 1 - - 1 - 7 Norway 18 10 3 3 - - - - 34 Sweden 28 9 4 9 2 1 3 - 56 Grand Total 103 49 16 32 9 3 6 1 219 * Includes externally funded appointments, Junior Professional Associates (JPA), Special Assignments, and Staff Exchange Program participants Staff Distribution by Grade Level Grades Denmark Estonia Finland Iceland Latvia Lithuania Norway Sweden Total GC-GD - - - - - 1 - 2 3 GE 1 - - - 1 - - 1 3 (eg Analyst) GF 14 - 5 - 4 1 8 10 42 (eg Economist/Specialist) GG 25 3 11 - 5 4 17 20 85 (eg Sr Economist/Specialist) GH (eg Lead 14 1 6 1 - - 5 9 36 Economist/Specialist) GI 2 - 2 - - - - 1 5 (eg Manager, Director) GJ - - 1 - - - - 1 2 (eg Vice President) GK - - - - - - - 1 1 (eg Executive Vice President) UC 8 - 6 2 1 - 1 7 25 (eg externally funded, JPAs) ETC 6 - 2 - 1 - 3 4 16 ETT - - - - - 1 - 1 2 Grand Total 70 4 33 3 12 7 34 56 219 Grades GA-GD refer to administrative and office support positions with specialized functions in a given unit. GE-GK refer to professional-level positions responsible for a variety of operational tasks (e.g. participating as a full member of a multi-disciplinary team; undertaking assignments of project preparation, appraisal and supervision in field of expertise). ETT refers to Extended Term Temporary (ETT), who is hired at levels GA through GD for a minimum of 12 months. This term is renewable and is subject to a lifetime maximum of two years. ETC refers to Extended Term Consultant (ETC), who is hired at level GE and above for a minimum of 12 months. This term is renewable and is subject to a lifetime maximum of two years.

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    Data as of July 15, 2010 Annex F Nordic and Baltic Countries* Procurement Data Financial Years 2008-2010 Overall Results Fiscal Years 2008-2010 Constituency Denmark Estonia Finland Lithuania Latvia Norway Sweden Total Country Total $115,642,517 $634,330 $45,664,340 $24,324,681 $409,410 $7,399,849 $176,693,236 $370,768,363 Average of WB 0.39% 0.04% 0.16% 0.08% 0.001% 0.03% 0.59% 1.24% Totals (%) Fiscal Year 2008 Percentage of FY Total Consultant Services Civil Works Goods WB Total Denmark $14,053,515 $26,437,920 $40,491,435 0.36% Estonia $115,789 $115,789 0.11% Finland $6,553,357 $3,061,485 $9,614,842 0.09% Lithuania $256,498 $18,470,365 $695,000 $19,421,863 0.17% Latvia $255,050 $255,050 0.002% Norway $1,040,160 $556,570 $1,596,730 0.01% Sweden $21,068,956 $6,492,674 $6,098,702 $33,660,331 0.30% Constituency Totals $43,343,325 $24,963,038 $36,849,677 $105,156,041 0.93% Bank-wide Total $1,440,630,590 $7,212,788,966 $2,629,565,220 $11,282,984,776 Constituency % of Total 3.01% 0.35% 1.40% Fiscal Year 2009 Percentage of FY Total Consultant Services Civil Works Goods WB Total Denmark $25,470,477 $1,296,910 $18,546,661 $45,314,048 0.45% Estonia $89,500 $89,500 0.001% Finland $8,992,821 $8,359,657 $17,352,477 0.17% Lithuania $344,730 $652,799 $997,529 0.01% Latvia 0.00% Norway $3,460,886 $3,460,886 0.03% Sweden $10,094,946 $105,031,420 $3,473,646 $118,600,012 1.17% Constituency Totals $48,453,360 $106,328,330 $31,032,762 $185,814,453 1.84% Bank-wide Total $1,150,691,233 $6,083,653,871 $2,866,743,609 $10,101,088,712 Constituency % of Total 4.21% 1.75% 1.08% Fiscal Year 2010 Percentage of FY Total Consultant Services Civil Works Goods WB Total Denmark $4,426,283 $25,410,751 $29,837,034 0.35% Estonia $429,041 $429,041 0.01% Finland $322,829 $17,183,111 $1,191,081 $18,697,021 0.22% Lithuania $301,293 $2,575,874 $1,028,122 $3,905,289 0.05% Latvia $154,360 $154,360 0.002% Norway $2,342,232 $2,342,232 0.03% Sweden $7,727,693 $14,440,690 $2,264,510 $24,432,893 0.29% Constituency Totals $15,703,731 $34,199,674 $29,894,465 $79,797,870 0.94% Bank-wide Total $990,653,789 $5,470,040,398 $2,070,315,335 $8,531,009,523 Constituency % of Total 1.59% 0.63% 1.44% *Note that Iceland was not awarded any major contracts during this period. These figures capture only contracts awarded above WB's prior review thresholds under IDA-IBRD investment lending operations. Therefore, the data in these reports should be used only as a proxy. Also note that the nationality of the firms considered in this reports indicate place of registration of the firm, which may or may not be the actual nationality of the firm. For instance, if Siemens (DK) wins a contract, then the database show it as a Danish award, although Siemens is of course German.

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