STRENGTHENING THE FOUNDATIONS FOR GROWTH AND PRIVATE SECTOR DEVELOPMENT : INVESTMENT CLIMATE AND INFRASTRUCTURE DEVELOPMENT September 17, 2004 INTRODUCTION AND OVERVIEW 1. Jobs, incomes and taxes generated by private firms are key to achieving the Millennium Development Goals (MDGs). Without the dynamic force of private initiative, disciplined by competitive markets, economic productivity in developing countries will remain low and people stay poor. Private sector growth is a key to poverty alleviation because it generates the jobs and higher income that poor people need, as well as the tax revenues required to finance social programs that benefit poor people and help to supply a skilled workforce. 2. Growth and private sector development is a broad agenda. Sound macroeconomic policy, debt sustainability, open trade, security, access to finance and good governance are all key requirements for the private sector to flourish. These conditions need to be complemented by micro-economic reforms and infrastructure services that help to unleash competitive forces. Relevant actions by policy-makers in recent decades have focused heavily on improving macro-economic policies and certain structural reforms, such as trade policy and privatization. Progress in these areas has underpinned higher trend growth rates in emerging markets. At the same time, attention to the details of the microeconomic foundations -- the policies and institutions that support efficient private economic activity -- has been uneven. Similarly, more attention is required to meet the significant infrastructure needs in developing countries in order to enhance production options and trade as well as to help poor people access basic services. 3. The pay-off for a heightened emphasis to job creation and growth through investment climate reforms and improved infrastructure services is likely to be significant. Doing Business in 2005 indicates that a hypothetical improvement to the top quartile of countries on the ease of doing business is associated with up to 2 percentage points more in annual economic growth. On the infrastructure front, estimates for Latin America in the 1990s suggest that a 10 per cent increase in infrastructure assets would increase growth by about 1.5 per cent per year. States in India with better infrastructure have seen higher long-term rates of poverty reduction. This is in contrast to the situation in some developed economies where a mature stock of infrastructure assets limits marginal economic gains. But even massive investments in infrastructure cannot compensate for inadequacies in the functioning of competitive markets, as the example of the Eastern States of Germany illustrates. 4. Objectives and Scope of the Paper. This note provides a brief overview of recent findings on the quality of the investment climate and policy effort, as well as on infrastructure service provision, which are informing the World Bank Group (WBG) approach to promote private sector-led growth and job creation. The paper does not elaborate on the status of specific WBG activities in this area nor address other development issues that are also critical for growth and poverty alleviation. Instead, the objective is to pose a series of strategic questions that can help frame a discussion on how best to refine and improve the WBG approach to investment climate reform and infrastructure service delivery.1 RECENT FINDINGS REGARDING THE INVESTMENT CLIMATE AND INFRASTRUCTURE Investment Climate 5. A good part of practical pro-poor growth policies is about bringing a better investment climate to areas where poor people live. Cross-country studies suggest that differences between countries in levels of productivity, and hence incomes, are mostly due to differences in the quality of 1The findings are largely based on research by the WBG on firm-level investment climate surveys and the "Doing Business" project, summarized in the World Development Report 2005, and on infrastructure, as summarized in the Infrastructure Action Plan and related work. 2 institutions and policies, with investment in human and physical capital accounting for the remainder. Recent micro-studies try to shed light on the detailed dimensions of this to inform policy choices. The results of firm-level surveys for China and India, for example, show that the quality of the investment climate varies significantly by state, province or city. They also show that improvements in the details of investment climate tend to be associated with increased income levels and reduced poverty. 6. Smaller and informal firms and farms, and hence poorer people, tend to benefit more than proportionately from improvements in the investment climate. The small and medium-sized enterprise (SME) sector merits a particular focus in the WBG Private Sector Development (PSD) strategy for two reasons. It serves as a particularly critical link between the growth and poverty agenda as a critical supplier of jobs and investment. At the same time, SMEs ­ often composed of young and women entrepreneurs -- suffer disproportionately from some policy and institutional impediments in the investment climate, and have significantly less access to financial and other business development services than do larger corporations, which tend to have special connections and relationships that can overcome an inadequate legal and regulatory regime. 7. When the investment climate is weak, many entrepreneurs and firms rationally stay informal. For example, a recent detailed study of an IDA country found that relatively better educated people stayed in the informal sector to escape corruption and extortion. Particular benefit for the poorer segments of society results from reforms reducing the costs of becoming formal, while increasing the benefits from formality. Such reforms include reducing cost and time to establish businesses, reducing the cost from bureaucratic harassment, corruption and excessive taxation, while providing the benefits of property rights protection and contract enforcement. Institutional improvements like property rights protection tend to matter more, for example, than the provision of external finance per se. Support, for example, to small and medium enterprises tends to be effective when the policy and institutional environment is adequate ­ just as aid effectiveness more generally depends on sound institutions. In light of these findings, the WBG provides support for investment climate reform targeted to policies and institutions that disproportionately affect SMEs and complements this policy work by leveraging SME capacity building efforts and creating successful business models which provide demonstration effects. 8. The detailed underpinnings of investment climate reform have too often been neglected. The agenda for investment climate reform is vast, and includes the need to remove unjustified entry barriers for firms, particularly small and medium-sized enterprises; and strengthen the frameworks for competition policy, deregulation, and property and contracting rights. The push for regulatory simplification does not imply abolition of regulation, but it does call for a focus on enhancing the flexibility of markets and strengthening competition. Competition is key, through the ability of new firms to enter the market, good firms to grow and bad firms to fail. Survey data show that firms exposed to greater competition tend to be more productive and innovate more, that is, launch new products, upgrade products and introduce new technology. Firms that prosper because of special connections innovate less. Competition ensures that business-friendly policy translates into benefits for consumers and higher incomes. Access to finance is another key requirement. Here, an appropriate regulatory environment underpinning the collateral and credit information systems needed for firms to be able to access finance is a key element of an enabling environment for private sector investment. 9. The new surveys on firm-level perceptions and performance provide further insights on the quality of regulations and infrastructure across and within countries. For example, notwithstanding major emphasis on market-oriented reforms in Latin America, most countries in the region continue to maintain excessively complex regulations for business and have neglected investment in infrastructure. In East Asia on the other hand, most economies have made major strides in facilitating business, by lowering the cost and time of such processes as starting-up businesses, dealing with customs and enforcement of contracts and by improving physical infrastructure. China currently compares with Chile, while Brazil lags significantly, and Hong Kong and Singapore exemplify global best practice. African countries tend to suffer disproportionately from infrastructure deficiencies. At the same time they tend to have complicated and costly regulatory systems, surpassed only by several Latin 3 American countries. Meanwhile, in OECD countries, the greatest push for regulatory simplification is observed in countries such as Denmark, Finland, the Netherlands and Sweden. In sum, the broad patterns of the quality of business regulation and infrastructure provision are consistent with overall growth performance. At the same time improvements in the investment climate do not mean abandoning the search for improved social safety nets. Indeed, regulatory reform underpins safety nets by enhancing the creation of jobs, incomes and taxes. 10. Establishing the credibility of policies through transparent and even-handed implementation of business regulations is an important part of building effective and accountable public institutions and good governance for PSD. Providing good policy advice on investment climate policies has to be complemented by attention to the longer-term agenda of institution-building for PSD. In this context, corruption is a cause and symptom of underlying public sector dysfunction. To address this challenge, the Bank is increasingly focusing more of its efforts on building efficient and accountable public sector institution. It is working on several fronts: helping governments establish good internal rules to administer taxes, business regulations and other government services for business; using firm-level surveys to provide objective information on public sector performance and in turn giving voice to the private sector in setting priorities for reforms and monitoring the reform process; and enhancing competition for traditionally viewed public services through private provision and private participation in the provision of infrastructure services. Infrastructure 11. Infrastructure needs are huge, and there have been funding difficulties for operations, maintenance and investment. Meeting the challenge of increasing access to quality infrastructure services will require sizable investments. Current estimates point to financing needs of about 7% of GDP for all developing countries--for both new investment and maintenance (O&M) expenditures--and as much as 9% of low-income countries' GDP. Comparing past actual investment and O&M rates (on average about 3.5 per cent of GDP in all developing countries) to projected requirements indicates the need to potentially double actual financing for infrastructure. This financing gap can, in part, be explained by historical constraints to both public and private funding for infrastructure. In recent decades, fiscal constraints slowed public infrastructure spending in many countries, for example, in India and in much of Latin America and Africa. The combination of inadequate fiscal resources and low user fees stalled system expansion and undermined quality of service. During the 1990s many countries tried to attract private investors. With the adoption of economic reforms, investment in infrastructure projects with private participation expanded rapidly from less than US$20 bn in 1990 to almost US$130bn by 1997, mostly in Latin America and East Asia, and then collapsed to a little above US$40 bn today. Private infrastructure developers and long term investors essentially withdrew as governments were unable to put in place sustainable policies that assured adequate and predictable returns, particularly in the politically contentious power and water sectors. In these sectors price levels prior to reform were just about 60 and 30 per cent respectively of cost in the average developing country. During this last decade, plagued by macro-economic shocks and strong currency fluctuations, many governments were unable to achieve and sustain cost-covering tariff levels. Furthermore, some of these governments defaulted on contractual obligations, increasing private investors' perception of risk and increasing the demand for risk mitigation support for long-term infrastructure funding. 12. A new balance between public and private sector roles is emerging for infrastructure financing and service provision. Public sector funding will remain central. Some 70 per cent of all infrastructure investments were publicly financed over the 1990s, with an additional 8 percent funded by official development aid, and calls on the public sector have increased as private investment slowed. At the same time, the scope for private participation in infrastructure remains substantial, by leveraging the mobilization of additional private capital per unit of available public sector resources. During the 1990s some 22 per cent of financing was private. Public-private partnerships that generate adequate cash flows for investors continue to flourish in sectors such as telecommunication, ports, airports, freight railways 4 and natural gas pipelines, where user fees are imposed on large wholesale customers rather than retail customers. However, in sectors such as roads and water supply and sanitation, the public sector is likely to remain dominant. 13. A large variety of public-private partnerships are emerging to facilitate provision of infrastructure services. Infrastructure services are required at many levels: from small community services to multi-country/regional services. Small scale domestic providers of infrastructure services, such as small water and power systems have long existed to fulfill demand in rural or other areas where large providers have not been able to meet demand. These are being complemented by small services providers in newer areas, such as mobile telecommunications and airlines. For example, in one Southern province of Vietnam small scale providers have connected 65 per cent of the population to water pipelines over the last decade. Some six hundred power companies operate small systems in Cambodia. Similarly, infrastructure investments which cross sovereign borders, such as cross-country pipelines, dams, telecom and transport networks are becoming increasingly common, nearly all of which involve large scale private financing to complement public funding. These combinations of public and private operation and financing, at a scale which matches that of the need for infrastructure services, will remain a central part of the agenda. WORLD BANK GROUP APPROACH TO INVESTMENT CLIMATE REFORM 14. The WBG is at the cutting edge of the investment climate reform agenda. The WBG is a leader in creating and applying innovative diagnostic tools for assessing the investment climate of our client countries and identifying the key factors driving growth and hence poverty reduction. More recently, it is expanding its efforts to bring best practice on solution design and lessons learned of political economy of reform to client country reform processes and to support client country efforts to adapt this knowledge to local conditions. Diagnostics 15. Country studies. Binding constraints on firms vary significantly from country to country. Compelling analysis of these constraints is often helped by systematic and representative firm-level investment climate surveys in addition to traditional focus group approaches. Representative samples enhance the quality of analysis, and they greatly enhance the political legitimacy of the findings. Survey- based measurement is most powerful when it is used to identify constraints as well as when repeat surveys help assess progress and provide feedback to governments about the effectiveness of reforms. In recent years, the World Bank and the EBRD have been at the forefront of developing and using firm- level surveys for diagnostics and results measurement. The World Bank Group has launched firm-level investment climate surveys in 54 countries in the last three fiscal years, and at least another 15 surveys will be launched this year. Collaboration on common survey approaches is expanding between World Bank, EBRD and ADB, with discussion underway with other multilateral development institutions. Other important country diagnostics include the work by the joint IFC/Bank Foreign Investment Advisory Services (FIAS), which undertakes some 50-60 studies per fiscal year, and the Corporate Governance group, which prepares some 10 corporate governance assessments each year. 16. Global benchmarking and agenda-setting. Benchmarking of key features of the business environment is proving a powerful instrument to set agendas and to motivate reform efforts. The investment climate surveys are designed to yield comparable information across countries. The World Development Report for 2005 reviews results so far. The Bank-IFC "Doing Business" project has proven a particularly powerful global benchmarking tool. The 2004 report captured the procedures and the time and cost required to solve certain standard business problems for domestic small and medium sized companies across 133 countries, including OECD economies ­ to start-up companies, to deal with employees, to attract credit, to enforce basic contracts and to go through bankruptcy processes. The new 5 edition "Doing Business in 2005" covers 145 countries and adds indicators on land titling and registration, inspection systems (for construction activity) and shareholder rights protection or corporate governance. The benchmarks have been used by IDA and the Millennium Challenge Account, as well as the European Union in support of the so-called Lisbon agenda to enhance country competitiveness. Work on Doing Business in 2006 is underway. Solution Design 17. Good practices. The Doing Business project is yielding systematic information on good practices for the design and implementation of laws and regulations. The indicators reflect what is "on the books" and thus allow easy identification of particularly useful solutions and ways to adapt them to different legal systems. A major effort is currently underway at the WBG, to systematically capture such good practice examples for use by governments. Work on good practice has progressed substantially in the area of micro-finance, where the Consultative Group to Assist the Poorest has developed an inventory of good practice and conducted a benchmarking exercise of the performance of aid agencies active in micro-finance. Similar work on good practice to assist SMEs is being assembled supported by an interagency working group, but requires substantial further progress. The IFC is currently focusing efforts on this work in its SME department. 18. Reform processes. As part of the World Development Report 2005 an effort has started to document case studies of reform experiences, and to identify political economy lessons from these experiences. The cases highlight options to design reform processes, to involve stakeholders, in particular to structure dialogue between the public and private sector, and to navigate the political challenges that may arise. The case studies of reform experiences together with good practice examples and the insights from diagnostic studies and benchmarking exercises are to form part of a new basic training course on investment climate reform that is currently being developed at the IFC/World Bank. The course is designed for staff who help governments support investment climate reform processes. Implementation 19. WBG efforts are leading to successful reform outcomes. So far, Investment Climate Assessments are helping to shape some 30 new Bank lending operations and country programs spanning all Regions. In 20 developing countries and 12 IDA countries, Doing Business in 2004 helped spur governments to cut either the time or cost of starting a business or both. Some 30 countries worldwide have instituted reforms motivated at least in part by the indicators of the report. Doing Business in 2005 has just been released. And a new tracking system developed in FY04 found that on average 70 percent of FIAS policy recommendations were fully or partially implemented within three years that the recommendation was made. 20. Important issues of corporate social responsibility within the private sector are also at the forefront of the PSD implementation agenda. To help advance the corporate social responsibility agenda (CSR), the WBG is moving on several fronts: providing policy advice to governments on the public sector roles and instruments that can most effectively encourage CSR; facilitating CSR standard- setting through partnerships such as the one with the Global Alliance for Workers and Communities; and integrating CSR reporting in global supply chain analysis. This work complements IFC support to firms' sustainability strategies. In this regard, IFC is at the cutting edge in helping to set CSR standards with regard to issues such as stewardship of the environment and building best practice on public policy roles and instruments for enhancing CSR. Results Measurement 21. A results measurement framework for both advisory and lending services is critical to ensure timely and effective support for investment climate reforms. As seen in the experiences of China, and more recently India, incremental reforms, placed within a programmatic framework can have 6 tangible development impacts even before a comprehensive reform agenda is implemented. Thus for the many countries facing a broad and challenging reform agenda, a critical challenge is to build the political will and capacity to focus on selected binding constraints to business activity. In doing so, governments can create a credible commitment that, step-by-step, they will improve the business environment. 22. Experience shows that developing a rigorous and standardized basis to assess problems, identify priority areas, and subsequently monitor progress goes a long way in building public sector capacity to define and implement a country's investment climate reform agenda. Firm-level and expert-based surveys benchmarking key features of the business environment across countries are powerful tools to identify constraints as well as provide feedback to governments about the effectiveness of reforms. Firm- based surveys have the additional benefit of strengthening the voice of the private sector in policy dialogue. 23. Thus, to help build and sustain public buy-in for a programmatic approach to investment climate reform, the World Bank Group is placing greater emphasis on results measurement ­ for both advisory services and lending activities. Thus, FIAS is systematically monitoring implementation of recommendations for several years following an assignment. Indicators from Doing Business and from investment climate surveys also have found their way in the monitoring and evaluation efforts of the World Bank. For example, indicators from Doing Business are being used in Russia to monitor the level of regulatory burden on small business, and in Brazil to assess progress in a $505 million adjustment loan that includes components for improving business climate regulations and reducing logistics costs. In this context, support for the World Bank Group diagnostic work underway needs to continue and be further integrated into a broader results measurement program for lending activities related to PSD. In addition, sustainable results measurement efforts will need enhanced capacity building efforts in client governments. Donor Coordination 24. Effective donor coordination, which includes some very productive partnerships with other donor agencies, is enabling the WBG to leverage its efforts and achieve greater development impact. Regular country-based co-ordination mechanisms applied to investment climate issues are paying off as other aid agencies are increasingly using the WBG diagnostics results and findings in their own programs and initiatives. For example, investment climate survey results are used by other agencies to develop reform programs, such as the DIFD programs for Mozambique and Kenya. Other partnerships include:: IDA collaboration with EBRD and the ADB on implementation and financing of investment climate surveys; co-financing FIAS work and PDFs (IFC contributes roughly 20 percent of facilities' operating costs, and multiple donors contribute the remainder); and the Norwegian Trust Fund window for activities related to private sector and infrastructure, which provides grant resources for World Bank Group activities aimed at mainstreaming investment climate, governance and infrastructure for the poor across the Bank and IFC. WORLD BANK GROUP APPROACH TO INFRASTRUCTURE SERVICE PROVISION 25. The new WBG infrastructure agenda2. Against the backdrop of a decline in Bank infrastructure lending during the 1990s, recent declines in private investment, and the tremendous unmet demand, the WBG developed the Infrastructure Action Plan (discussed with the Board in July 2003 and the Development Committee in Sept. 2003). In the Action Plan, the WBG has committed to supporting infrastructure service delivery through a more balanced and pragmatic approach, including mobilizing funds from public and private sources. Significant progress has been made in advancing the infrastructure agenda. For example, the Bank has articulated and disseminated its approach to the respective roles of the public and private sectors in infrastructure service provision in a series of sector 2 See accompanying paper "The World Bank Group's Infrastructure Business: Update on the Implementation of the Infrastructure Action Plan". 7 specific guidance notes in the power, water, transport, and telecommunications sectors. This has been translated into concrete projects responding to client demand; IBRD/IDA delivered an additional US $1 billion in infrastructure lending in FY04. It has also begun to rebuild the infrastructure knowledge base by ramping up country analytic work on infrastructure, developing a new analytical tool, the 'Recent Economic Developments in Infrastructure' (which was piloted in Colombia and Indonesia), investing in regional infrastructure studies together with partners, for example, in East Asia Pacific with the ADB and JBIC and investing in indicators for results measurement. The WBG has also begun to explore new approaches and instruments to enhance engagement at the sub-sovereign level--beginning with the creation of the Municipal Fund--and at the cross-country/regional level where there is a strong project pipeline, especially in Africa. In addition, the WBG is focusing on enhancing application of risk mitigation instruments, as well as assessing the potential for an increased role by small-scale services providers by, for example, conducting a global survey of such providers (through the global program PPIAF) and by including small scale providers in several output-based projects. 26. The balance between public and private sector roles. The WBG is pragmatically pursuing a variety of public-private partnerships to address funding and management issues. For example, three joint IDA-IFC projects are currently under preparation in the power sector in three African countries, each implying a different balance of public and private responsibilities. This allows private sector operating expertise to be merged with public funding where risks are such that private sector parties are unwilling to invest. Similarly, urban infrastructure concessions may be unbundled from rural ones, because different types of investors can be attracted in different locations with different risk characteristics. Also, more and more private providers from emerging markets are taking a lead role in the development of public-private partnerships schemes (for example, private companies from Brazil, South Africa, and India). In sectors with retail customers public-private partnerships schemes are innovating with structures where the private participation is coming via portfolio investments from local institutions, with operating capacities being provided by third parties (public or private) under simpler risk allocation mechanisms. 27. Expanding infrastructure finance, particularly at the sub-sovereign level. As the needs for infrastructure funding increase and available public sector resources cannot keep pace, the need to connect infrastructure development with private financial markets as a way to leverage and mobilize more capital becomes clear. New and improved risk mitigation products and applications, including in the area of currency and regulatory risk, will help to make this connection more effective. The WBG is already working on enhancing institutional capacity to enable financial markets to fund infrastructure development (that is, economic regulation, judicial reform, conflict resolution, etc.). However, to be able to further reduce the funding gap the WBG must increase its efforts to also work in the development of innovative risk mitigation products and applications that will foster private capital mobilization for infrastructure development. In addition, as an increasingly important part of infrastructure development takes place at the sub-sovereign level, the WBG must strengthen its support to those sub-sovereign entities responsible for infrastructure service provision. Helping sub-sovereign entities with the transition from relying on central government funding towards more market-based funding ­by further strengthening of institutional capacity as well as providing risk mitigation--is a critical tool to mobilize additional capital for the provision of infrastructure services. 28. Fiscal space. Following a recent IMF Board discussion (April 2004), the IMF and the Bank have begun to explore, in a number of pilot countries, the scope for increasing the fiscal space for productive public investments, in particular in infrastructure. The approach focuses on three key areas--the targeting of the current fiscal balance, the treatment of public enterprises, and accounting for Public Private Partnerships--and recognizes that public expenditures in infrastructure assets can generate future returns and growth and should therefore not be unduly constrained. In several pilot countries, the Bank and the Fund are now working on how the principles can be put into practice, focusing on defining how to support public infrastructure investment, while maintaining fiscal responsibility and debt sustainability; exempting commercially run public enterprises from fiscal targets; and better measuring and managing public sector liabilities incurred in public-private partnerships. 8 29. Tariff and subsidy policy. The generation of sustainable adequate cash flows is crucial for infrastructure providers, be they public or private. This has been most difficult to achieve in the power and water sectors. Increasing revenues from users whilst achieving social objectives and avoiding adverse political reactions is a fundamental component of reform strategies. Underlying it all is the adequacy and predictability of cash flows for investors, be they public or private. Traditionally the Bank has had policies to require cost-covering user fees where practical in infrastructures sectors, for example, in power but not in roads. No amount of pragmatism can get around the need to set adequate tariff levels, even when they may incorporate cross-subsidy mechanisms or well-designed output-based subsidies to address the issues of affordability. Without adequate tariff levels the arguments to allow extra fiscal space are also weakened. Yet, insistence on politically difficult tariff reform may hamper efforts for productive client engagement. Guidance has been provided to staff on approaches to be followed when engaging in situations where service providers are not currently financially viable. 30. Output-Based Aid. The WBG is actively pursuing output-based aid (OBA) approaches, which are seen as potentially powerful schemes to enlist public-private partnerships to provide infrastructure services to poorer populations. These schemes feature targeted and performance-based payments provided by governments, combined with user fees, to establish adequate tariff levels while at the same time providing subsidies that are well targeted and performance based. Development of OBAs using WBG financial support to mitigate subsidy payment risks has the potential to: (i) increase access to private financial markets, (ii) improve performance of private providers, and (iii) expand WBG operations for the provision of infrastructure services. Over 30 projects are under preparation or implementation, for example, IDA and IFC pioneered a joint project in the electricity sector in Tajikistan. Scaling up of the OBA approach is a key component of the new infrastructure agenda. DIRECTIONS FOR FURTHER WORK 1. Advisory Services and Capacity Building. World Bank Group support for our clients' investment climate reform agendas is most likely channeled through either advisory services in combination with policy-based lending, or through stand-alone advisory services and capacity building efforts. In the context of the clear need for scaling-up development assistance, we anticipate an increased use of advisory services supported by policy-based lending for those countries with fiscal or Balance of Payments (BoP) needs. However, as the benefits of advisory services are not dependent on a country's fiscal or BoP situation, we also expect increasing demand for free-standing advisory services, some of which will be done in collaboration with other donors. Do Ministers agree that there is an important role for stand-alone World Bank Group advisory services that support the investment climate reform agenda? 2. Results Measurement. To help build and sustain public buy-in for a programmatic approach to investment climate reform, the WBG is placing greater emphasis on results measurement ­ for both advisory services and lending activities. In this context, support for the World Bank Group diagnostic work underway, such as the Doing Business Project and Investment Climate Assessments, needs to continue and be complemented by an enhanced results monitoring program of reform progress in investment climate and infrastructure. Sustainable results measurement efforts will need capacity building in both the WBG and client governments. Do Ministers agree that the results measurement agenda for investment climate reform needs to be further advanced and merits a sustained monitoring and evaluation effort? 3. Political Economy of Infrastructure Reform and Fiscal Space. The Bank Group's business model emphasizes the need for finding pragmatic solutions along the entire spectrum of public and private sector provision of infrastructure services. This requires balancing the objectives of various stakeholders on key issues, such as ensuring sustainability of infrastructure service provision through cost recovery while meeting the needs of poor consumers. It also requires taking into account the issue of ensuring overall fiscal balance when committing public infrastructure expenditures, either through direct investments, through contributions to public private partnerships, or through the provision of targeted 9 subsidies to poor consumers. Do Ministers agree with the focus of the IMF-Bank work aimed at developing a common framework for ensuring fiscal balance and adequate risk management while maintaining fiscal flexibility for public infrastructure investment?