World Bank Approves New Financing Instrument

Sources:

Economic Times: World Bank Approves New Financing Instrument
The Financial: World Bank Approves Program-For-Result - New Financing Instrument
World Bank: Putting Results First: PforR to Link Disbursements to Development Outcomes

On January 5, 2012, the World Bank Board of Executives approved a new financing instrument named “Program-for-Results” (PforR). This new instrument will link the disbursement of funds directly to the achievement and verification of defined and specific results. The World Bank believes PforR financing will result in greater accountability and compliance in the countries receiving aid, which in turn will deliver improved and sustained results to further the Bank’s goal of accelerating development globally. PforR lending was not created to replace the World Bank’s other lending instruments (Investment Lending and Development Policy Lending), but instead was designed to give another funding option to developing countries.

PforR was developed to fight problems that have sometimes occurred under previous World Bank programs. For example, under other development models an initiative might acquire funding to build a school, but fail to address the problem of finding qualified teachers for the new building. Another example is providing financing for a brand new health clinic, but taking no provision for how to ensure the clinic has the needed medications or supplies. The World Bank believes that providing specific and defined incentives tied to the disbursement of funds will push a country towards those specific results and help mitigate the types of problems described above. For example, PforR, instead of only providing financing for the new school, would instead fund the new school building and tie additional funds disbursements to a specific result, such as improving literacy.

Considering how important development information is to PforR, a main challenge will be compiling accurate information. The World Bank will handle this problem with a country-by-country approach. In each country the World Bank will create a network of government agencies, statistical or audit entities, and third-party groups such as nongovernmental organizations (NGOs) to gather information and track each program’s progress. The World Bank believes these measures will allow it to quickly and accurately compile the information needed to determine if the project is achieving the required results.

PforR will also include new anti-fraud guidelines to decrease corruption in the disbursement of funds. These new guidelines give the World Bank the ability to investigate any allegations of fraud in a program, not just those instances related to bank financing, as is the case under current rules. The new anti-fraud guidelines will also create provisions on how cases of fraud and corruption should be handled. In certain instances, combating corruption will be one of the conditions that must be met to trigger future disbursement of funds.

Under PforR the World Bank will also engage in an assessment to ensure that a program will not have a large adverse environmental or social impact. For this reason, PforR will not be available to finance projects that pose the risk of significant and irreversible impact on the environment or people, such as large dams, ports, or power plants. Programs that do not fall into this category must still pass a social and environmental assessment, including consultations with the groups that will be most affected by the project before approval. Once the assessment is complete it will be available to the public.

While not available for all types of projects, PforR is a flexible financing instrument with many potential uses. For example, PforR could be used to provide the funding necessary to increase post-birth care for mothers and newborns, provide clean sustainable water supplies, increase education, or reduce the number of households in poverty. A key factor of PforR is that is allows the World Bank to provide only a fraction of a large development project’s funding, with additional funds provided by governments, private investors, and many other sources, while still allowing the World Bank to apply its technical and environmental expertise to the entire project.

The World Bank developed the exact methods for the implementation of PforR over a twelve-month trial period with input from thirty-four client countries and seven donor countries. Included in the trial were government officials, development partners (other international institutions with similar goals such as the Global Alliance for Vaccines and Immunizations), civil society organizations (such as the Center for International Environmental Law and the World Resources Institute), private sector actors, and academics. With this extensive trial, the World Bank is confidant PforR is ready for use and will further the World Bank’s goal of global development.