A 5% cap will limit P4R Operations over a 2 year pilot period, but questions remain about how P4R expansion will be conditioned upon the results of management and IEG evaluations
On January 24th, the World Bank recast the rules of the game for international project finance.
The Bank’s Board of Directors approved Operational Policy 9.0 that launches a new lending instrument, Program for Results Lending (P4R).[1] As the cornerstone of the Bank’s ongoing reforms to investment lending, P4R signals a watershed shift in the Bank’s steady march away from the prescriptive lending model on which the existing safeguard policies have been premised for over two decades. P4R moves the Bank toward increased reliance on borrower safeguard and oversight systems.
This update reviews the outcome of the World Bank’s decision to approve the new Program for Results Lending instrument. The note suggests how PR4 will influence the future composition of Bank lending, persistent concerns that will be closely monitoring during a two year pilot period and concludes with recommendations for the design of planned evaluation of the pilot.
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P4R Program for Results Lending Update, February 29, 2012, Bank Information CenterProgram for Results Lending proposes to tie World Bank payments to the client’s delivery of results, rather than to the strict adherence to pre-approval measures long employed as a condition for managing risk by borrowers of concessional resources from the Bank. Breaking with the project mold, the Bank argues that P4R will enable the Bank to extend the reach of its advice and financial support to entire national programs despite providing a relatively small share of the operating budget. Greater purchase on results, expanded reach, reduced transaction costs through the greater use of country systems and a clearer, less duplicative distinction of borrower/bank roles are only some of the touted benefits from P4R that the Bank has contrasted with limitations and the perceived costs of conventional investment lending.
With only one Bank Board member abstaining (Italian Executive Director Piero Cipollone), the Bank overwhelmingly approved the new P4R policy. Despite the wide support at the Board, the P4R policy proposal was the target of broad criticism outside the Bank and guarded reservations among certain managers within. For many critics, P4R signals an expansion of risk that is not necessarily compensated by the tools to manage it. Key concerns were associated with the lack of adequate social and environmental safeguards, unclear or weak transparency and accountability commitments, and a mismanagement of the consultation process.[2]
Several key concerns were addressed by the Bank during an abbreviated consultation period since August 2011, but a number of important concerns remain (see below). In part due to these concerns, the Bank agreed to pilot the P4R instrument for a two year pilot period, exclude category A operations (highest environmental and social risk operations) and limit eligibility for new operations to a cap of 5% of annual IBRD and IDA lending (or the equivalent of approximately $1.5-2.0 billion per year). The Bank committed that its Integrity Vice Presidency (INT), the institution’s primary anti-corruption arm, will have the necessary scope to investigate both Bank and borrower government funds.[3] The Bank did not agree to further limit the P4R procurement thresholds from proposed levels.[4]
Finally, the Bank’s management (Operations and Country Services – OPCS) and independent evaluation unit (IEG) will conduct parallel evaluations of the first cohort of P4R operations after no less than two years with civil society and private sector input to provide guidance concerning next steps for the pilot.[5] Despite the obvious duplication of efforts, should management and IEG prepare their own evaluations there would be some evident competition between them. It remains unclear how the results or recommendations of either evaluation would factor into the future of P4R. Management has not indicated that measures responding to an independent review are necessary before P4R moves forward without a cap.[6] Nevertheless, the pending definition of terms of reference for either evaluation constitutes one of the next important decisions. P4R stakeholders should be engaging Bank Governors, management and IEG about the design process.
U.S. lawmakers outlined these and other demands on P4R that call on the U.S. Treasury to report to Congressional Appropriations Committees on progress toward meeting them every six months during the coming two years.[7] The first Treasury report would be due before June, 2012.
[1] See OP 9.0 Program for Results (Feb 2012) ; World Bank, “A new instrument to advance development effectiveness: program-for-results financing” (Dec. 29, 2011)
[2] See Civil Society Comments and Concerns about the World Bank’s Proposed “Program for Results” (P4R)
[3] The scope for INT Anti-Corruption mandate is explained in Guidelines On Preventing and Combating Fraud and Corruption in Program-for-Results Financing, February 1, 2012.
[4] P4R procurement will be limited to contracts below $50 million for Works, $30 million for Goods, $20 million for IT and non-consulting Services, and $15 million for Consulting Services.
[5] See OP 9.0 Program for Results (Feb 2012) ; World Bank, “A new instrument to advance development effectiveness: program-for-results financing” (Dec. 29, 2011)
[6] The Board document doesn’t require an independent evaluation. Management has agreed to consider the IEG evaluation, among other information, as a useful input for its review and ongoing improvements to the P4R instrument. See OP 9.0 Board paper 66193 (Dec. 29, 2011) A New Instrument to Advance Development Effectiveness: Program-For-Results Financing, pghs 111 and 116, pgs. 36-37.
[7] These recommendations taken on board by the Band were outlined in the U.S. Appropriations Act that financed the U.S. contribution to the 2010 World Bank global capital increase. See FY2012 State, Foreign Operations, and Related Programs Appropriations Bill