This is a presentation by Anjali Kumar, Lead Economist in the World Bank Group's Independent Evaluation Group (IEG) on the World Bank Group's response to the global economic crisis.

1. The World Bank Group’s Response
to the Global Economic Crisis
Independent Evaluation Group
World Bank / IFC / MIGA
Anjali Kumar
Lead Economist, IEG
February 2012
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2. Crisis Support is an Important WBG Activity
The recent global crisis had a severe
impact on WBG borrowers
 Global growth slowdown: 3.9 % to -2.1%
 Advanced economies: 2.6% to -3.3%
 Developing Bank clients: 6 % to 1 %
 Europe and Latin America: 7 % to – 2 %
With a lasting impact on poverty
 Estimated 50-64 million more poor people
Motivating a strong response from the
WBG
 117 countries received Bank loans during
2009-10;
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 17 received crisis support during 1993–2003

3. IEG has Evaluated the WBG Crisis Response
The mandate of the Independent Evaluation
Group is to
Understand, objectively, what worked and what didn’t,
in WBG support; and
Identify and disseminate lessons
IEG prepared a series of ‘real time’
evaluations on WBG Crisis Response
Review of WBG Response to Past Crises (2009)
Review of 17 Country Case studies
Phase I Evaluation of WBG Crisis Response (2010)
Real time evaluation focused on volume, speed, and early
results
Phase II Evaluation of WBG Crisis Response (2011)
Motivated by Phase I findings; focused on strategy,
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instruments, design and results in key sectors

4. WBG Response to Past Crises
Review of Past Crises showed:
 Sharp spikes in WB (fast disbursing) lending
 Soon reverting to pre-crisis levels
IFC’s investments in crisis countries declined, on
average, by 40 percent in previous crises –
 And returned to pre-crisis levels in three years
Past crises were largely country specific
The Bank’s contribution was 10-20 percent
 Korea: $10 billion out of $58 billion – 17%
 Thailand: just over 10%
Loans in the past were successful in supporting
financial and public sector reforms
 But the poverty focus was insufficient
4

5. Lessons from WBG Response to Past Crises
Speed of response matters
Quality and focus are crucial for good
outcomes
 It is vital to attend to poverty
dimensions from the outset
Financing modalities matter
 Additional instruments may be needed
Coordination with partners is critical,
both external and internal
 Some quality issues were noted in the
reviews of past crises
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6. WBG Response to the Global Crisis
Phase I Evaluation
WBG crisis response objectives (Mar 2009):
 Protecting the poor, maintaining
infrastructure, sustaining the private
sector
Quick and sizable response, as in past crises
 Accelerations in disbursement
 Aided by use of quick disbursing loans
 Mostly to middle income countries
 IDA – frontloading and special initiatives
Readiness was helped by
 A strong initial WB financial position
Current knowledge, ongoing dialogue
Overall attention to poverty was greater than in
previous crises
 Although with gaps in central guidance
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and monitoring

7. WBG Response to the Global Crisis -Phase II
Scope of the Evaluation
Review of Bank support to client countries
 Multiple dimensions of stress
 Relative to other IFIs and MDBs
Review of lending terms and instruments
 Relative to other IFIs and MDBs
Design and results in key sectors:
 Fiscal, financial and social protection
In-depth review of crisis initiatives
 At IFC and MIGA
 And factors underlying IFC’s pro-
cyclical response
7

8. Phase II Findings: Some Reaffirmations
 At the World Bank:
 Sharp increase of IBRD financing
 Accelerations in processing efficiency and
disbursement speed
 Positive role of established country dialogue
and country knowledge
 Contribution of the Bank’s significant initial
financial capacity
 At IFC and MIGA:
 IFC’s investment response – limited, when its
financial capacity could have supported
moderate counter-cyclicality
 IFC’s new initiatives – creative but requiring
set up time
 MIGA ‘s countercyclical support to key
financial institutions in Eastern Europe
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9. WBG Response to the Global Crisis
Phase II Evaluation Findings
The WB provided support to the majority of MICs
suffering high levels of stress
 Where it sometimes supported relevant financial and
fiscal reform
Most of the Bank’s crisis support went to countries
that were moderately affected
 Other factors also matter
Many operations in moderately affected countries had
limited short term crisis response objectives
 Some also fell short of solid medium term engagement
 During crises, it is difficult to focus on the medium term
IFC’s crisis response reflected a strategic choice to
protect its portfolio
 And an overestimation of portfolio deterioration
MIGA could have increased new guarantees further
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 In line with other political risk insurers

10. Volume and Distribution of Support- WB
Incremental Lending Relative to Levels of Large increase in support
Crisis: World Bank  Consistent with G20 strategy
 Reflected previous lending patterns
700%  Low correlation with severity of crisis
 Most results remain robust separating
IBRD /IDA
600%
500%
Many factors explain these findings
% Increase in Lending
400%  Country demand, country performance,
other IFIs
300%
 Signals to calm markets – especially,
200% systemically important large borrowers
100%  Quality of dialogue and engagement
0%  A credible counterfactual at the country
level is virtually impossible to establish
Growth Decline  Difficult to assess stress or support
needed in the midst of the crisis
10

11. Volume and Distribution of Support -
Other IFIs / MDBs
Incremental Lending Relative to Levels of Increased WB financing resembled other MDBs
Crisis: Comparisons with Other Donors
 Bank response was somewhat greater
12 1.2
 Other MDBs also increased fast-disbursing
funds, mostly to MICs
Increase in Other Major Donor Lending
10 1
Increase in World Bank Lending
 IFC’s Global Trade Finance Program
8 0.8
mirrored other MDB trade programs
Lending increases of other IFIs / MDBs were
as % of GDP
as % of GDP
6 0.6
more correlated with crisis severity
4 0.4  Excluding the IMF, which has a mandate to
respond to crises
2 0.2
 Also excluding the EU and the EIB: focused
on crisis-affected Europe
0 0
Do not analyse other MDBs’ overall response
 Comparisons limited to countries that were
Other Major Donors (incl. IMF)
Other Major Donors (excl. IMF/EIB/EU)
common borrowers
World Bank
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12. Instruments and Pricing - WB
IBRD crisis lending was based on its traditional
instruments, especially, DPLs, and was extended at
historically low rates
 Reflecting record low market reference rates
 And a pre-crisis spread reduction
Adverse market forces, increased lending, and limited
increase in capital and reserves have led to a
decline in the Bank’s financial ratios
 Its equity to loan ratio has declined from 37.5
pre-crisis to 28.0 (Sep 2011)
The Bank, like other MDBs, explored crisis specific
lending instruments
 Pre-crisis adjustments to the Deferred
Drawdown Option (DDO) increased its use
12  The Special Development Policy Loan (higher
rate and shorter maturity) was scarcely used

13. Instruments and Pricing - Other IFIs / MDBs
IBRD crisis lending was lower cost than other IFIs
 Comparatively long maturities
Other MDBs / IFIs: More use of crisis specific
instruments
Adjusted normal lending terms
 IMF surcharges for above-quota borrowing
 IDB spread increase, applied to existing balances
– and $3 billion on special crisis lending terms
 ADB: Countercyclical Support Facility -
surcharge, lower maturities, no IMF program.
 AfDB: Emergency Liquidity Facility
Better positioned to protect their financial
capacity, even as they responded to the crisis
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14. Phase II Findings–WB Financial sector
Levels of Financial Stress and Areas of Bank
Intervention Loans with some financial sector content doubled
($53 billion compared to $25 billion )
Short Term Bank Little overall difference in focus between crisis-
Impairment
related and non-crisis lending
nents designed to address
es mkt impairment in short
run
Short Term Credit Few Bank clients suffered acute financial stress -
Shortages
onents designed to address
quidity / credit shortages in
such as systemic bank failures
ontext of the crisis
 Partly reflecting pre-crisis Bank support
Medium Term
nents in the financial sector
Banking issues
to address longer term In deeply affected financial systems, the Bank’s
sues in the banking system
policy loans had relevant content
Medium / long
onents aimed at improving  Financial role of the Bank was small relative
term access /
long term access to credit/
inancial services
inclusion to overall support, and sometimes late
0% 20% 40% 60% 80% In credit constrained countries, lines of credit were
sometimes slow to disburse
FSAPs had often provided early indicators
High Financial Stress Moderate Financial Stress Low Financial Stress
14  But could not provide ongoing monitoring

15. Phase II Findings : WB Fiscal Management
The Bank provided $23.3bn in 67crisis
Content of Crisis Related Fiscal DPOs support fiscal management DPOs to 48
countries
0 10 20 30 40 50 60 70 80 90 100
 About 54% went to countries with
Other sector focus moderate fiscal stress
Macro mgmt fiscal stability
Relevant fiscal objectives included:
 Strengthened macroeconomic
management, fiscal
Public fin mgmt and
procurement
Cost effectivness of public sustainability, public expenditure
expenditures efficiency and improved public
Social expenditure protection
financial management
Though in about half the DPOs, sector
Tax policy /Tax Administration
focus was not related to the crisis
Administration / Civil Service
reform
 And about half supported measures
to protect social and infrastructure
expenditures
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16. Phase II Findings –WB Social Protection
Commitments for Social Protection Lending Social Protection support increased dramatically from FY09
and is still above pre-crisis levels.
by Approval Year (US$ millions)
Lending was concentrated in middle-income countries in
the most affected regions of LCA and ECA
Only a small share went to countries with severe crisis
Committments, US$ millions impact as support was a continuation of long-term
5,000 engagement
4,067 3,919 The bulk of lending was for poverty-targeted safety nets
4,000 The Bank could not easily protect workers from labor
market contractions
3,000  Due to the limited availability of flexible risk-
management programs
1,805  Especially in countries with high informality
2,000 1,418
1,196 1,069 The Bank helped some countries by scaling up
1,000 599 unemployment insurance and public works
And provided some others with medium support for
- institutional development
Readiness of countries’ social protection systems was a
FY05 FY06 FY07 FY08 FY09 FY10 FY11 binding constraint
 In terms of available programs
 And relevant crisis data
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17. Phase II Findings –IFC
GTFP; BRF
Target and Actual Commitments
B. GTFP Target and Actual Commitments
(US$ millions) IFC’s response: a series of global initiatives
Target Actual  Pre-existing initiatives such as the Global
3,460 Trade Finance Program were successful
 Newer initiatives, though well
3,000
2,840
2,380
designed, faced initial difficulties
2,250
2,000
 E.g., the Bank Recapitalization Fund, the
Debt and Asset Recovery Program and the
Recap commitment by fiscal year (US$
millions) Infrastructure Crisis Facility
FY09 FY10 FY11 as of end Feb.
Target Commitments
2011
Actual Commitments Facing initial constraints, IFC did not ramp up
1600 the volume or increase the risks of its
1200 investments
 But took significant steps to protect its
373
529 portfolio
N/A 20  It intensified risk monitoring, undertook
stress tests, and took measures to contain
FY09 FY10 FY11 (as of
March 31, 2011) costs
 Its crisis contingency plans, based on past
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scenarios, may have been too conservative

18. Phase II Findings –MIGA
MIGA’s New Business Compared to Berne MIGA’s crisis response, concentrated in
Union Insurers, 2005–10 ECA, was strategically relevant
 Under its March 2009 Financial Sector
Initiative, part of a wider Joint International
Financial Institution Action Plan
The volume of new guarantees could have
 Increased further, notably in riskier
countries, given its substantial capital
headroom
Volumes of business declined relative to
 Both private and public providers of
political risk insurance in developing
countries
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19. Overall Lessons for Future Crisis Response
Although very proactive during the global financial
crisis, the World Bank Group needs to give
thought to its role and strategy in future crises
 Benefits of the Bank’s country focus go hand
in hand with the need for a cross-
country, global strategy to balance needs
Crisis engagement strategy requires consideration of
the role of the Bank relative to its partners
 Especially in severely affected countries
Early warning, preparedness and timeliness, including
an eye on long-term capital adequacy, are
essential for the WB, IFC and MIGA
 New lending instruments could be considered
 The Bank’s expertise in key areas should not
be allowed to decline during non-crisis
periods
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20. Going Forward
A strategic roadmap for crisis engagement is a priority
 Ongoing, systemic analysis of stress factors
 A decision-making process for blending country-level
responses within a global strategy to apply scarce
resources where they are most effective
 A clear rationale, modalities, and instruments for
supporting less-affected countries
A framework for coordination with other IFIs
A review of instruments for effective crisis support and
meaningful medium term development
 In the context of possibly constrained overall
capital, income and allocations.
At IFC, greater reliance on pre-existing arrangements
 And better assessments of potential risk
At MIGA , business development
20  And geographic asset diversification