As the World Bank sets out to review and update its Safeguard Policy framework over the next two years, the Operational Policy 8.60 governing the use of DPLs should be included in that review. This brief identifies five areas of DPL policy guidance that merit revision and could guide a full DPL evaluation.
World Bank and DPLs: What middle income countries want
Analysis of the Sustainable Environmental Management DPL in Brazil – Part I (BICECA Bulletin)
Vince McElhinny, Bank Information Center (vmcelhinny@bicusa.org)
Feb. 4, 2011
In this brief, the first of two that focuses on the evolving relationship between the World Bank and middle income countries such as Brazil, we examine the shifts in the Bank’s portfolio, the safeguard policy framework and the emergence of new, less prescriptive lending instruments. Since 2004, development policy operations (DPLs) have emerged as a preferred financial instrument for a growing number of World Bank clients, including many in Latin America. In FY10, the World Bank approved $26 billion in DPLs, representing 52% of IBRD funding. Despite the popularity of DPLs and innovative use in new areas such as promoting reforms in environmental governance, concerns are mounting about effectiveness and accountability.
Trends indicate a scenario where traditional safeguard policies may apply to as little as a third of the World Bank’s future portfolio, while DPLs and other less prescriptive or accountable instruments expand as a share of Bank operations to keep middle income countries borrowing.
As competing sources of development finance have diminished the relative financial clout of the World Bank and force it to modernize, this institutional reform process must face an existential question in the coming years. Over the next decade, many of the Bank’s largest borrowers will approximate the graduation point. Should the World Bank continue to privilege the largest middle income countries with concessional public credit? Should these middle income countries continue to play such a decisive role in revising the safeguard policy framework that is most appropriate to the World Bank’s poverty reduction mission for the coming decades?
In the first of this two part analysis, the DPL is examined as an example of institutional evolution and a survival mechanism for the World Bank in middle income countries such as Brazil. There are many that view the use of environmental DPLs as a forward looking and promising innovation by the World Bank and support the experimentation with these new instruments. However, as experiments, the Bank should emphasize learning and adjustment to fully maximize DPL potential. This brief lays out five recommendations for the World Bank to ensure that this experimentation with environmental DPLs results in learning and effective development.
A full external evaluation of DPLs – a product line that now constitutes 40% of the entire WBG business, is overdue. Such a future DPL evaluation should emphasize results, particularly in terms of strengthening environmental governance, that have so far been overlooked by the biannual DPL retrospectives produced by management.
As the World Bank sets out to review and update its Safeguard Policy framework over the next two years, the Operational Policy 8.60 governing the use of DPLs should be included in that review. Recent analysis of past Bank efforts to build environmental governance should provide a further rationale for revising Operational Policy 8.60 in the area of consultation, transparency, social and environmental risk analysis and results. The brief identifies five areas of DPL policy guidance that merit revision and could guide a full DPL evaluation.
In a forthcoming BIC Info brief, we examine the SEM DPL in Brazil as an emblematic example of the observed portfolio and policy shifts from the country and institutional perspective. We present an update of the execution of the SEM DPL and outline several issues that will determine the loan’s effectiveness in the medium term.