STRATEGY UPDATE PAPER FOR FY04-06: IMPLEMENTING THE W O R L D BANK'S STRATEGIC FRAME WORK March 7,2003 FOR OFFICIAL USEONLY International Bank,forReconstmction and Development International DevelopmentAssociation CONTENTS EXECUTIVE SUMMARY ....................................................................................................................... i CHAPTER 1: THE GLOBAL CONTEXT AND OUR STRATEGIC DIRECTIONS............................ 1 A. Setting the Global Context........................................................................................................... 1 B. Continuity and Evolution of Strategic Directions........................................................................ 2 C . Focus on Scaling-up and Results ................................................................................................. 4 CHAPTER 2: IMPLEMENTATION AND RESULTS ........................................................................... 6 A. Client Services -The Big Picture................................................................................................ 6 B. Client Services-Tailored Responses.......................................................................................... 9 C. Organizational Effectiveness..................................................................................................... 13 REQUIREMENTS -FY04-06 ............................................................................................................... CHAPTER 3: FRAMEWORK FOR WORK PROGRAMS AND RESOURCE 20 A. Scaling up is the priority ........................................................................................................... 20 B. Client Services are Strengthening.............................................................................................. 21 E. Conclusion ................................................................................................................................. 29 ANNEX 1. WORK PROGRAM AND QUALITY INDICATORS: FY00-06 ..................................... 30 ANNEX 2: EVOLUTION OF BANK WORK PROGRAMS ACROSS SECTORS AND THEMES: FY03-FY06............................................................................................................................................. 31 TABLES Table 1. Strategy. HIPC and Knowledge Products and Services in FY03*................................................. 7 Table 2. Lending Services in FY03*............................................................................................................ 8 Table 3. Indicators of Quality and Development Effectiveness*................................................................. 9 Table 4. Strategy, HIPC and Knowledge Products and Services: FY03-06* ............................................ 23 Table 5 Lending Services: FY03-06* ....................................................................................................... . 23 Table 6. Summary of the FY03-05 Budget Framework............................................................................. 25 Table 7. Increases in the FY04-06 Work Program Framework ................................................................. 26 Table 8. Summary of the Revised FY04-06 Budget Framework............................................................... 27 BOXES Box 1. The MDGs and Improving Infrastructure......................................................................................... 3 Box 2. A More Complete Picture of Client Services ................................................................................. 11 Box 3. Areas for Corporate Management Attention .................................................................................. 15 Box 4.Regional Strategies for FY04-06.................................................................................................... 22 This report is the product of a Bank-wide team effort, with inputs provided by units across the Bank. Core Team: Kali Azzi-Huck, Stephane Guimbert, Maria Ionata, Taku Kamata, Harsh Kapoor, Laszlo Lovei, Glenn Miles, Sonia Plaza, Srikanth Puranam, Michael Pollock, William Rex, Francesco Scaduto- Mendola, J.P. Singh, John Todd, Yoshine Uchimura, Leslie Villegas, Ivan Velev, Kangbin Zheng, and Jan Zika. Director: Hasan Tuluy Vice President: Ani1 Sood Acronyms AAA Analytical and Advisory Activities ADB Asian Development Bank AFR Africa Region AML/CFTs Anti-money laundering/Combating the financing of Terrorism BPRT Business Planning and Reporting Toolkit CAS Country Assistance Strategy CDD Community Driven Development CDF Comprehensive Development Framework CIS Commonwealth of Independent States DAC Development Assistance Committee DEC Development Economics EAP East Asia and Pacific ECA Europe and Central Asia EFA Education For All ESW Economic and Sector Work EU European Union FAC Finance, Administrative and Corporate FRM Resource Mobilization Department FSAP Financial Sector Assessment Program FY Fiscal Year GPPs Global Programs and Partnerships HDN Human Development Network HIPC Heavily Indebted Poor Countries HIV/AIDS Human Immunodeficiency VirudAcquired Immune Deficiency Syndrome HNP Health Nutrition and Population HRS Human Resources Services IMF International Monetary Fund I-PRSP Interim-Poverty Reduction Strategy Paper JSA Joint Staff Assessment LCR Latin America and the Caribbean Region LDC Least Developed Country LICUS Low Income Countries Under Stress MAP Multi Country HIV/AIDS Program MCH Maternal and Child Health MD Managing Director MDB Multilateral Development Bank MDG Millennium Development Goals MIC Middle Income Countries MNA Middle East and North Africa OECD Organization for Economic Cooperation and Development OED Operations Evaluation Department OPCS Operations Policy and Country Services PACT Partnership for Africa Capacity Building PREM Poverty Reduction and Economic Management PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Paper PSD Private Sector Development QAG Quality Assurance Group SAR South Asia Region SSP Sector Strategy Paper TA Technical Assistance UNDP United Nations Development Programme VPU Vice Presidential Unit WBI World Bank Institute WTO World Trade Organization EXECUTIVE SUMMARY i. The challenge of reducing poverty and meeting the Millennium Development Goals (MDGs) is immense. 1.2 billion people still live on less than $1 a day, while 2.8 billion live on less than $2 a day. While we are likely to achieve the targets of halving the proportion of people living in extreme poverty between 1990-2015 and improving access to safe water, albeit with considerable unevenness across countries, meeting the other goals is less certain. The breadth of the challenge requires the World Bank, in partnership with developing countries and the international development community, to scale-up the impact of our work to achieve the needed development results. ii. Building on the unprecedented consensus about how to achieve sustainable poverty reduction, participants at conferences in Monterrey, Johannesburg and Doha forged a new global partnership, with clear roles for members of the development community. For their part, developed countries have an obligation to reduce barriers to trade, to help developing countries address constraints that prevent them from fully realizing the benefits from trade and investment flows, and to ease debt burdens. Developing countries must focus on good governance, sound policies and robust institutions. To match the commitment to progress on policy reforms on the part of developing countries, industrialized countries will also ensure that adequate aid resources are available. iii. The Bank, as a partner in this scaling-up effort, has a unique role to play. It will leverage its knowledge and financial resources to play a catalytic role in development, concentrating on the twin pillars of the Strategic Framework - building the climate for investment, jobs and -sustainable elements to achieving sustainable poverty reduction and helping clients meet the growth, and investing in and empowering poor people to participate in development as critical MDGs. Working with the principles of the Comprehensive Development Framework (CDF) and Poverty Reduction Strategy Papers (PRSP), the Bank will continue to apply its framework of selectivity to work most effectively within countries, across countries, and globally. In addition, the Bank will continue to improve and broaden client services to respond to evolving client needs. iv. Scaling-up our impact requires an unwavering focus on the results we are trying to achieve. Setting clear objectives, establishing monitorable indicators and using the results to learn and improve management decisions will be a long and difficult process, dependent on strong partnerships and on developing a results-oriented corporate culture. A framework for global monitoring to measure key indicators is being developed, but significant data gaps remain. Bridging these gaps will require coordinated efforts with donors, developing countries, and civil society, Work will continue to flesh out the Bank's results framework by building data and statistical capacity in client countries and within the Bank. The Bank will also support efforts at global monitoring of policies and action by developing a common framework for measuring progress towards the MDGs. v. We will continue to focus on implementing our multiyear Strategic Framework. As with last year, management is committed to implement our commitments and to strengthen the delivery of our program at the country level. vi. The quality and quantity of our client services we expect to deliver this year are within the ranges projected in last year's Budget paper. Our strategy and knowledge products are on target, with ESW products considerably ahead of last year, while our lending volume is in the lower half of the range due primarily to a lower level of adjustment lending in FY03. We are working to increase the flexibility of our lending options to respond to client demand. In keeping with the agreements of the IDA13 replenishment, 18-21 percent of IDA'Soperational finance is expected to be in the form of grants. Quality indicators are stable after five years of steady gains, and ESW quality has improved. Management will continue to emphasize the importance of timely and proactive resolution of problems to ensure that quality gains are maintained. vii. Client services are geared toward improving the development effectiveness of our work. Over time, they have evolved to reflect a variety of client needs. The Bank has also focused more attention on measuring and capturing elements of our work that fall outside the traditional lending and analytical activities. In this fashion, the Bank assists countries through a portfolio of formal and informal services and instruments intended to shape policies and to enhance client capacity. Increasingly, effective country programs include a broader range of development services such as aid coordination, partnership facilitation, informal policy dialogue and timely research and analytical support. Underpinning all client services are the principles of the CDF: country ownership, country-led partnership and a long-term and holistic approach that is results- oriented. viii. Client services are tailored to address the different needs of different clients. Low income country services are based on the PRSP approach, with its emphasis on partnering on a common, country-driven agenda. With Low Income Countries Under Stress clients, the emphasis is on innovative ways to facilitate policy and institutional development, concentrating on knowledge transfers and critical social services. Middle income countries have diverse needs. Some are requesting more knowledge and advisory services, including through grant-funded technical assistance. Others have important financial needs, especially for infrastructure and rural development, or for budget support for broader programs to sustain growth. ix. At the global level, Bank participation in global programs and partnerships has grown apace with globalization and demands for collective action to address development challenges that are outside the purview of any one country. Global programs and partnerships (GPPs) are making notable contributions to our efforts to achieve the MDGs. x. We continue to strengthen our organizational effectiveness, with particular emphasis on overcoming implementation obstacles and measuring and managing for results. We recently took stock of demand for Bank engagement and identified seven areas in need of more focused corporate attention. These areas are not new priorities but ones that require particular management attention to overcome implementation challenges. As new challenges arise, the areas that require attention are likely to shift. xi. Several cross-cutting institutional impediments to implementation have also been identified, and managers from across the Bank have drafted action plans to tackle these obstacles. The main objective of this focus on implementation is to help staff deliver concrete benefits to client countries. xii. Investing in staff will continue to be vital to our success. Strategic recruitment coupled with staff learning has been the focus of our efforts. Since July 2002, 230 additional staff have joined the Bank to fill gaps in priority areas. Staff learning programs for the coming year will focus on ensuring that staff have the skills and knowledge to achieve and measure results. We will also continue to expand learning programs to country offices as part of our decentralization agenda. xiii. Despite progress in our human resource agenda, challenges remain. Measures in addition to increased recruitment are being taken to address staff overload, which continues to be a source of stress for staff. We will also work to reverse the attrition of core technical staff and balance the need for technical expertise with multi-sectoral integration skills. Enhancing diversity remains a priority, and will continue to guide our staffing decisions. xiv. One way to lighten the load on clients and staff is to harmonize our work with other donors and simplify our business. The Bank will continue to reduce transaction costs and to streamline technical requirements in a number of key areas including country analytic work. xv. A number of initiatives are underway to simplify the way we work. The scaling up mechanism will significantly reduce processing time for straightforward follow-up projects, A simpler investment lending framework will provide a single umbrella of operational policies with mix and match flexibility to respond to client needs. The Bank has also introduced improved financial reporting requirements for borrowers and fiduciary arrangements to help build client capacity and reduce the cost to clients of doing business with the Bank. Finally, the Bank has launched an Ideas Fund to elicit suggestions from staff on ways to further simplify our work. xvi. The Bank's new disclosure policy complements our simplification agenda. It allows the release of a greater number of lending related reports including on adjustment operations. The disclosure policy, along with an improved approach to public information and translation, should increase access to information by our clients and partners in the outside world. xvii. The challenge of scaling up also drives the Bank's proposed work program and budget. Although the volume of our support is important, the Bank is working to scale up its contribution to development in other critical ways as well. We will better leverage our resources - both human and financial - through stronger partnerships at the country, regional and global levels, and we will focus on the role of ideas, knowledge and capacity enhancement to make our programs more effective. A focus on results underpins these efforts. xviii. Knowledge products, including analysis, advice and technical assistance, will remain at the increased level achieved over the last year. The number of new loans is expected to increase slightly through FY06. xix. The Bank is using different approaches to deliver traditional products and providing a greater variety of other development services. Many of these activities are not well measured and could be contributing factors to the upward pressures on unit costs that the Bank has experienced over the last few years. xx. The results agenda is also presenting new challenges and costs. A great deal of this work is concerned with building an effective medium-term approach to measuring and managing for results, and in most cases will not translate into quick wins. While much of the results agenda involves doing similar things better, there are some incremental costs involved. xxi. The FY03-05 budget framework outlined in last year's Budget Document built on an FY03 expenditure framework of $1,376 million in FY03 dollars, which was funded through a base budget of $1,356 million, and through pre-programming anticipated carryover of $20 million - with the understanding that this was done on a one-time basis and would increase pressure on this year's budget by an equivalent amount. The proposed framework for FY04 included an additional $15-25 million linked to increases in the FY04 work program, resulting in the projected budget increase of $35-45 million in FY04. xxii. Actual spending in FY03 is projected to be close to the FY03 expenditure framework. Units are currently projecting an under-run of $12 million, with $35 million remaining unallocated in the Central Accounts. Although the unit under-run is subject to some uncertainty, the total is expected to be significantly lower than in FY02, reflecting the tighter budget management practices now in place. xxiii. As indicated in last year's Budget Document, the FY04 budget framework includes a $35-45 million increase, based on a $15-25 million increase in the work program. This increase results from a $40-50 million increase in the units, offset by $25 million of projected savings in central accounts and increases in reimbursables. The additional resources for the units are largely for client services (about $25 million), and also reflect external and other requirements (about $15 million) not anticipated when the FY03-05 framework was established. In FY05 and FY06, the proposed budget framework indicates a $10-15 million increase (also consistent with last year's budget framework) and a $15-25 million increase respectively in operational units, primarily for client services. xxiv. The overall FY04-06 resource framework represents a prudent use of the Bank's resources and is consistent with IBRD'snet income situation. Allocable net income in FY03 is currently projected to be about $1,610 million. This is $89 million lower than the projections made in July last year, primarily due to increases in loan loss provisions, as the credit quality of the loan portfolio has deteriorated in FY03. xxv. In conclusion, we are focused on implementing our strategy, which is responsive to the changing global context and evolving client needs. We will continue to seek opportunities to scale-up by leveraging change through knowledge and partnerships, increasing our development effectiveness, and improving our client services. A focus on development results will continue to underpin all of our work. We will also carry on with our ongoing efforts to improve client services and to increase our organizational effectiveness. Addressing these challenges will require an increase in resources within the range described in the FY03 budget framework. - iv - CHAPTER 1:THE GLOBAL CONTEXT AND OUR STRATEGICDIRECTIONS 1. Chapter 1 sets out the global context in which we operate, outlines our strategic framework and highlights our focus on scaling up and on implementing to achieve results. Chapter 2 then describes the World Bank's progress in implementing the strategic framework, focusing on client services, organizational effectiveness and scaling-up the development impact of our work, Building on this foundation, Chapter 3 translates the work underway - and the challenges that it presents - into a proposed framework for the Bank's FY04-06 work program and associated resource requirements. A. SETTING THE GLOBAL CONTEXT 2. The challenge of increasing growth, reducing poverty and meeting the Millennium Development Goals (MDGs) is immense. In spite of great strides in poverty reduction in the past few decades, 1.2 billion people still live on less than $1 a day, while 2.8 billion live on less than $2 a day. Over the next 50 years, world population is projected to grow from six to nine billion, with almost 95 percent of that increase in developing countries. While at the global level we are likely to achieve the MDGs of improving access to safe water and halving the proportion of people living in extreme poverty (largely due to progress in China and India), meeting the other goals is less certain. Across regions, progress towards the goals is uneven. While most parts of the world are on track to achieve many of the goals, Africa will have a more difficult time meeting the goals given the region's current trajectory and insufficient growth rates. Even within regions that have made greater progress, there are wide disparities among and within countries. While substantial change in developing countries will be crucial if the countries are to get on track to meet the goals, significant external finance will also be necessary. The need for global collective action - through the international partnership that has emerged to support progress towards these goals -has never been greater. The international community, the World Bank included, must focus on how to scale-up the ultimate impact of our efforts. 3. The global economic and political outlook remains uncertain. Recovery from the global economic downturn has been sluggish. The geopolitical situation is tenuous, with the threat of war in Iraq, continued conflict in the Middle East and the prospect of uncontained terrorism. Economic and political uncertainties persist in Latin America. Oil prices are rising while non-oil commodity prices are weak, further damaging developing country economies which depend on these exports. Compounding the commodity crisis, agricultural protectionism in developed countries is distorting markets and limiting prospects for export- led development. HIV/AIDS continues to ravage Africa and is growing more prevalent in other regions. Many countries are reaching the limits of debt sustainability. Inadequate access to private financial markets limits growth and development efforts in middle income countries. Civil conflict, one of whose causes is poverty, continues to frustrate development in many countries. Finally, long-term peace and sustainable development will not be complete without a solution to the severe inequality that persists throughout world; with 80 percent of the world's income concentrated in 15percent of the world's population. 4. The MDGs represent a commitment to the poor people of the world in these difficult times. They embody an unprecedented level of consensus on what is needed for sustainable - 1- poverty reduction and on our objectives and targets, which was affirmed at international conferences in Monterrey, Johannesburg and Doha. This broad agreement provides the opportunity to scale-up the development impact of our work through a new global partnership between developed and developing countries. This compact recognizes that to scale-up, developed countries must reduce barriers to trade and ease debt burdens, while developing countries must focus on increasing growth through good governance, sound policies and robust institutions. To match the commitment to progress on policy reforms on the part of developing countries, industrialized countries will also ensure that aid resources are available. The Bank Group, in partnership with the international community, is supporting the efforts of both developed and developing countries through lending, guarantees, analytic and advisory work, debt relief, capacity enhancement and global monitoring and advocacy. 5. No one entity alone can achieve the scale required by the MDGs. There must be a partnership in which efforts are complementary and learning is shared, and where policy, governance, and institutional changes are implemented and resources for them are forthcoming. The World Bank has a special role to play in this partnership, in particular through its analytical resources and the ability to leverage its financial resources. While the Bank's financial contribution is small relative to the scale of the challenges, our ability to leverage other resources for good policies, institutions, and capacity building can be substantial. The Bank can, therefore, play a major catalytic role. B. CONTINUITY AND EVOLUTION OF STRATEGIC DIRECTIONS 6. The Bank is focused on implementing its Strategic Framework' to meet these challenges. Guided by this framework, we will continue to seek opportunities to scale up our impact with flexibility to adapt to a changing global environment. The twin pillars of the Strategic Framework - building the climate for investment, jobs and sustainable growth and empowering poor people to participate in development and investing in them - are critical to achieving sustainable poverty reduction and helping clients meet the MDGs. Both pillars require the private sector and civil society to participate meaningfully in the development process and for government to be capable of including both of these sectors effectively in the development process. 7. The first pillar, building the climate for investment, jobs and sustainable growth, recognizes that the most successful development will be private sector led but facilitated by effective government which creates an environment for entrepreneurship and economic activity and provides for infrastructure, human capital, an appropriate legal and judicial system, and social cohesion. The second pillar, investing in and empowering poor people to participate in development, reflects the importance of health and education and of decreasing vulnerability to shocks if poor people are to take part in and help create economic opportunity. 8. Growth and thus increased public and private investment, including in infrastructure, are critical to achieving all of the MDGs (see Box 1). For example, research shows that reducing under-five mortality rates by two-thirds by 2015 will not be achieved through investment in health services alone, not even if accompanied by economic growth. Improved ' World Bank GroupStrategic Framework; January 24,2001; SECM2001-0211. water supply, education, roads, energy and the environment all make important contributions towards this goal. Working effectively across multiple sectors to achieve the desired outcomes is therefore a critical challenge for the Bank and its clients and partners if we are to see results on scale. Achieving the MDGs will not be possible without simultaneous work in multiple sectors. The role of infrastructure as an enabler of the MDGs is illustrative. In general, access to modern and improved infrastructure services directly improves health and education outcomes, reducing levels of child mortality from water borne diseases, and respiratory illnesses, and allowing easier access to schools and clinics. Improvements in infrastructure services can also make a significant contribution to MDG related outcomes in individual countries. For example, introduction of telephone services increases farmers share of the price by about 30 percent in Sri Lanka. In Peru, the income growth in households with access to infrastructure is 45 percent higher than in those households which lack such services. Access to sewerage in urban Nicaragua reduced child mortality in those communities by 50%. Paved roads in Morocco more than doubled the attendance of girls at school. Although the private sector share in infrastructure investment is much larger than 10 years ago, the flow of private capital to infrastructure projects has been declining recently. Given the importanceof infrastructure to the MDG agenda, the scale of the needs and the size of the Bank Group's resources, the overarching challenge for the Bank Group is to leverage all sources of financing to scale-up infrastructure service delivery. The Bank Group can do this by focusing on policy reforms, capacity building, and selected investment operations, particularly where they leverage the funds of other partners in development. 9. Underpinning all operational work are the principles of the Comprehensive Development Framework (CDF). Achieving the MDGs will require country-owned strategies built around good policies, institutions and governance that are supported by increased levels of development assistance and an improved international partnership. The CDF offers a set of core principles for the development of these country strategies: country ownership, a long-term and holistic vision and strategy, strategic partnership among stakeholders, and a focus on accountability for development results. The Poverty Reduction Strategy Papers (PRSPs) serve to operationalize the principles of the CDF in low income countries. The PRSPs are important strategic plans that put poverty at the center of the government's development plans and policies, and provide space for all actors-including the private sector and civil society-to engage on critical issues. The alignment of the CAS with the PRSP in IDA countries further strengthens the prospect of enhancing the impact of our strategy. The principles of the CDF and PRSP put a premium on client capacity to formulate strategy, define policies, and support the existence of institutions that can effectively implement development programs. 10. Selectivity is vital to success. As a client-focused institution, selectivity is particularly important at the country level, especially within countries as the Bank adapts its programs to be consistent with client needs and the Bank's capabilities. At the global level, corporate decisions on where to engage are driven in part by how well global initiatives can enhance country programs. Within countries, selectivity is guided by the principles of the CDF and PRSP. Through the Country Assistance Strategy, the Bank focuses its efforts on areas of critical importance to the client - such as the MDGs, where client demand and - 3 - ownership is clear, where the Bank has a comparative advantage, and where it complements rather than competes with the activities of our partners. The Bank will . be focusing its efforts where its leverage is the greatest -for example, through support for policy reform, capacity enhancement, demonstration effects and learning. Across countries, selectivity is guided by client need and program effectiveness. Our measures of need are based on income and non-income measures of poverty while effectiveness is measured directly by program evaluations and indirectly by measures of client policy and institutional performance. Since financial assistance is most effective in countries with sound policies and institutions, the Bank focuses its lending on countries with reasonable performance ratings. In Low Income Countries Under Stress (LICUS), where country circumstances such as weak institutions, poor policies, or conflict prevent the Bank's lending from being used effectively, we focus our efforts on analytic and advisory work and promoting good governance to help clients reach the point where they can absorb external financing productively. At the global level, selectivity is driven by the Bank's corporate priorities, including its commitment to the MDGs. Global programs are an essential ingredient to scaling up. To maximize our impact however, selectivity must be exercised through engagement on global issues which exploit our country expertise and development experience, working more closely with our partners in complementary roles and ensuring that our global work is effectively connected to our country-based programs. 11. The quality of response to crises and change present a powerful test of any strategy. The Bank's strategic framework has proved flexible enough to respond to evolving client needs while stable enough to provide planning predictability beyond the annual budget cycle. It reflects client demands to supplement our traditional lending with more knowledge services, policy advice and technical expertise. It has also proved responsive to social, political, or financial emergencies. The Bank's involvement in Timor Leste (formerly East Timor) provides a prime example. In 1999, Timor Leste had no functioning system of government, few remaining infrastructure facilities, no history of self-rule or democratic institutions, widespread unemployment and acute poverty. The Bank partnered with ten donor countries and institutions to leverage over $176 million in contributions against an initial pledge of $147 million. Through strong donor coordination, eight key sectors were reconstructed very rapidly. Project preparation was whittled down to an average of 3.5 months from the normal 15 months. By May 2002, when the new country formally became independent, it had a democratically elected government, a new constitution, a strong fiscal position, functioning infrastructure (including schools and health facilities), and had recorded economic growth. c. FOCUS ON SCALING-UP AND RESULTS 12. Scaling-up the development impact of our work and resources is about more than rethinking the type of projects we undertake or bridging financing gaps. It entails using knowledge, ideas and partnerships to leverage change in policies and institutions and a focus on improving implementation capacity. It will require us to use all the instruments and resources at hand to increase our development effectiveness at the country, regional and global levels. It will also mean improving the effectivness and efficiency of our client - 4 - services to deliver more and higher quality services that address new and emerging issues. It will also mean recognizing and exploiting multisectoral causes of sectoral outcomes. 13. Indeed, a significant aspect of scaling up our impact is focusing attention on development results at the country, regional and global level. Concern with the persistence of poverty and development effectiveness has turned greater attention to measuring and managing for results. This focus on results is a natural progression in the Bank's work. We have evolved from measuring the numbers of deliverables, to assessing their quality, to determining how these quality deliverables contribute to sustained improvements in country outcomes. At the country level, a results orientation means helping clients build capacity to embed their development objectives in a results-based framework that can be monitored and evaluated. 14. In this spirit, the Bank's results framework, supported by the Development Committee, has been translated into an implementation action plan', with a number of key components. First, the results agenda places a premium on country focus and ownership as set out in the PRSP. Within the Bank, the strategy and instruments in the results-based CAS are central to a greater results orientation. Third, corporate reporting on results is being taken forward through the IDA Results Measurement System, in QAG operational reports, and in corporate strategy and budget documents. Finally, staff learning programs and incentives are being reviewed to ensure they are aligned with the results focus. 15. Moving toward a results orientation is a long and difficult process. It will require the Bank to coordinate closely with partners. It also demands a great deal of data and statistical capacity, beginning with developing countries where development outcomes are realized and measured and where the MDGs and other goals will be met, or not. The Bank's efforts at global monitoring seek to address some of these concerns by developing a common framework for measuring progress on policies, actions and outcomes needed to achieve the MDGs and related development objectives - assessing progress made by both developing countries and developed countries in implementing the commitments made at Monterrey and elsewhere. 16. Implementing this agenda to strengthen the delivery of our programs at the country and global level and to ensure progress toward the MDGs is key. Even as we adapt to new developments, the bulk of our attention will be focused on delivering on our commitments. To that end, units across the Bank have worked together to take stock of our commitments, clarify their translation at the country level, and identify the range of actions needed to overcome the implementation challenges that exist. Better Measuring, Monitoring, and Managing for Development Results: Implementation Action Plan, (CODE2002-0086), December 18,2002 - 5 - CHAPTER 2: IMPLEMENTATION AND RESULTS 17. Chapter 2 describes the Bank's progress in implementing the strategic framework outlined above. It starts with an overview of the range of services provided to clients, and then details how the Bank's work is tailored to meet the variety of client needs at the country and global levels. The chapter then turns to the range of actions the Bank is taking to increase our organizational effectiveness and to scale-up the development impact of our programs. A. CLIENTSERVICESTHEBIGPICTURE - 18. The quantity and quality of strategy and knowledge products and services projected for FY03 are within the projected ranges in last year's Budget Paper. The number of Heavily Indebted Poor Countries (HIPC) documents will be below the projected range. Table 1 provides an overview of the delivery of these products and services. Among the strategic products, CAS and PRSP coverage is up this year. The number of new CASs is expected to increase to 38-40 in FY03 (from 34 in FY02). Client . delivered PRSPs (including interim PRSPs) and Bank-Fund delivered Joint Staff Assessments are expected to nearly double from 15 in FY02 to 21-25 in FY03. To date, the HIPC Initiative has committed around $42 billion worth of nominal debt service relief. Twenty-six countries have reached the decision point, and six of them have gone on to the completion point. A further 12 countries are eligible for HIPC debt relief but many of them are having difficulty in entering the HIPC process because of civil conflict or other impediments. For FY03, it was expected that a further 15 HIPC documents would be prepared for countries reaching their decision or completion points or for which a preliminary assessment of HIPC eligibility was likely. However, it now appears that only 2 to 3 HIPC documents are likely to be considered by the Board - as the other countries are experiencing delays due to renewed civil conflicts, worsening economic climate, and/or insufficient progress on economic reforms. The Bank is actively looking at how to help these countries emerge from conflict so that they may enter into the HIPC process and benefit from debt relief. It is also initiating a series of workshops with other donors in order to study the broader problem of long-term debt sustainability. The HIPC program will also require . a strengthened commitment from all its partners to ensure that the resources required for debt relief and continued support for development assistance are forthcoming. The Bank is also continuing to emphasize knowledge products and services for clients. The delivery of Economic and Sector Work (ESW) products is considerably ahead of last year: in FY03 at mid-year, we have delivered some 172 products, compared to 75 recorded by the same time in FY02. The Bank's ESW strategy continues to emphasize the need for core diagnostic products which are critical to underpinning policy dialogue and country assistance strategies, as well as a range of reports, policy notes, workshops and informal products that respond to client needs for analysis, advice, and capacity enhancement. Much of the Bank's ESW work is done in partnership with other donors, and with strong client participation. To help establish common standards for quality, and to strengthen ESW's results focus, the Bank has produced a series of toolkits for diagnostic ESW products. - 6 - Table 1. Strategy, HIPC and Knowledge Products and Services in FY03* .......................................................... 335 457 612-667 172 604-685 235 248 280-320 ................................................................................................................................................................. Core Diagnostic Reports 63 62 90 144-154 29 124-130 ................................................ Other Diagnostic Reports 100 74 35 50-55 4 40-47 Country Advisory and Regional Reports 129 99 123 86-111 59 111-118 11 111111 Policv Noteslother Products 86 100 209 170-185 73 209-225 (1 ................................................................................................................................................................................................................................................................% Network Anchor ESW Products nla nla Sector Strategy Papers 3 4 7 3-4 2 * Annex 1 includes a comdete deliverablestable with associated explanations. II 19. The quantity and quality of lending services projected for FY03 are also within the projected ranges in last year's Budget Paper: The current estimate for IBRD/IDA lending commitments in FY03 is $16-17.5 billion. Due to the decline in adjustment lending, the end-year results are expected to be in the lower half of the range of $16 to $20 billion projected in last year's Budget Paper. The numbers of lending operations is projected at 230-250 compared to the projected range of 241-261 (See Table 2 for more details). Within these totals, the share of investment lending, which averaged 60 percent over the past five years, is projected to increase to over 70% in FY03. In addition the Bank is working to modernize its lending instruments. Work to reform investment lending is focused on reducing lending processing times and rationalizing fiduciary and safeguard requirements. The Bank is also updating its operational policy and procedures on adjustment lending in a new Operational Policy/Bank Procedure (OPBP) 8.60. As part of our program of financial support, a program of IDA grants is being implemented in line with the IDA13 replenishment arrangements (and the Grant Guidelines for FY03 discussed with the Executive Directors in November 2002). As such, during the IDA13 cycle, the share of IDA'S operational finance provided through grants is expected to be between 18-21%, and grant percentage for FY03 is also projected to be within this range. - 7 - Table 2. Lending Services in FY03* ................................................................................................................................................................................................................................................................Ï IDA Commitments ($ billion) 4.4 6.8 8.1 7-8 2.8 6,5-7.0 ................................................................................................... ($".................................................................................................................................................................................................. Adjustment Lending billion) 5.1 5.8 9.8 n/a ................................................................................... 1.9 4.5-4.8 II Investment Lendino ($ billion) 10.2 11.4 9.6 nla 4.8 11.4-12.7 ................................................................................................................................................................................................................................................................È Number of Loans: 235 242 240 241-261 86 230-250 II ................................................................................................................................................................................................................................................................% of which IBRDllDA 223 225 229........................................ 235-255 .................................................................................... 83 225-245 Adiustment Lendina 23 30 44 nla 18 33-41 ......................................................................................................... Investment Lending 200 195 185 nla 65 192-204 Special Funding (Kosovo,Timor-Leste, WBG) ............................................................................................... 12............................................................................................................................................................................................................................ 17 11 6 3 13 14 25 5 22 20. After 5 years of steady improvements in quality, several portfolio indicators for FY02 returned to levels comparable with FYOO levels (See Table 3). Quality of projects at-entry was 86% satisfactory in FY02. ESW quality, having lagged earlier, has now improved to 92% satisfactory in FY02. OED ratings of outcomes for closed projects has increased from 73% satisfactory in FY97 to 77% in FYO1. Apart from quality at-entry, some other portfolio management indicators are now lower, notably the realism index3and proactivity4,The Bank will watch these trends carefully and continue to encourage the shift to more timely and candid self-ratings in project status report. The Board endorsed a judgment on the appropriate balance in fostering innovation, whilst respecting fiduciary responsibilities. The present level of riskiness, at 19% on the fine-tuned rating scale', is within the range of 15-20% they endorsed. To ensure that quality gains from recent years are sustained, management will emphasize the importance of timely and proactive resolution of any emerging problems, whilst also bringing more completely into the Bank's quality culture a focus on a more integrated approach around strategic goals (notably the MDGs) and results. Realism is the divergence between risk assessed by task teams and then as adjusted by the QAG system of 12 flags. Proactivity measures whether corrective action has been taken on self-identified problem projects in the last year. Refinements give greater weighting to projects in: (i) countries in conflict or post-conflict situations, and (ii) countries rated less than "satisfactory" in OED Country Assessment Evaluations. In addition, the criteria for determining "high risk" have been redefined to ensure that projects of this type are captured. - 8 - Table 3. Indicators of Quality and Development Effectiveness* 111 Quality at Entry 89% 94% 86% 90+% n/a T I 1 ................................................................................................................................................................................................................................................................| Quality of Supervision 92% nla 90% 90+% Quality of ESW bl 86% 90% ...................................................................................................................................................................................... 92% go+% 11 76% 77% 81% nla nla nla % Projects at Risk 15% 12% 19% 15-20% 19% 1520% ll11 ................................................................................................................................................................................................................................................................» % Proactivity Index 84% 90% 84% 90% 79% 9. % Realism Index 79% 80% 59% 70% 61Yo 21. This section has presented an aggregate overview of the range and quality of services provided to clients. The following section presents various details of how these services are translated into country and global programs - to work together as a coherent package, and to respond to the differing needs of our clients. B. CLIENTSERVICESTAILOREDRESPONSES - 22. The Bank's country business model has evolved over time to reflect both the variety of client needs and the continuing lessons of development. The key lessons are encapsulated in the principles of the Comprehensive Development Framework: . Clear country ownership of program objectives is the first building block of the Bank's approach, In the middle income countries CASs are developed in collaboration with the client. For low income countries, ownership is clearly articulated by the client in their formulation of the PRSP, which makes the client's poverty strategy the basis for intervention and the design of the CAS. To broaden ownership, the Bank's . programs have become more and more participatory and reflective of the local economic and cultural context -an approach increasingly based around partnership. Development is country-led partnership, bringing the full range of local and international resources and talent to the table to achieve a common objective. Such an approach involves a close and continuous interaction with an array of local partners - where the Bank is often looked to play a convening role to help align external support with the client's development strategy. Increasing amounts of Bank staff time and resources are spent on in-country partnerships, supplementing the Bank's core relationship with government, with consultations with the private sector and civil society - including academia, unions, faith-based organizations and media. Community driven development is one of these partnership approaches, generating capacity, voice, accountability and empowering local communities at the same time. In addition to country level partnerships, the Bank's support for regional partnerships helps countries work together to realize positive multi-country externalities, benefit from spillovers, and capitalize on scale economies. The Nile Basin Initiative is a regional partnership.within which the ten countries of the Nile Basin seek to manage and develop the river in a cooperative manner, share substantial socioeconomic - 9 - . benefits (from increased energy and food production for example), and promote regional integration and peace. Sustainable development requires a long term and holistic approach by all parties. Developing countries - and the international community more broadly - have committed to long-term goals in the form of the MDGs, and need approaches that will sustain over time the investments made now. We are working with our clients, including through briefings of new governments, to ensure that our work together reflects the pace of development. The holistic approach helps link a broad variety of programs and resources to a common set of outcomes - for example, in Vietnam, the Bank undertook a broad program of non-lending services that helped gain the confidence of Vietnamese officials and served as a sound basis for lending. This was followed by a program of financial assistance that had a strong and consistent focus on structural reforms to support the transition to a market economy, infrastructure development to eradicate the impediments to growth and poverty alleviation. Ensuring that gender issues are fully integrated into country strategies is another example of the . holistic approach. To that end, the Bank is currently revising its operational policy on gender to support the implementation of the Gender Mainstreaming Strategy. Focusing our programs on the results that we are trying to achieve, and developing indicators to measure our progress, is the best way to align our activities and learn as we go along. The Bank is piloting a results-based CAS in several countries, and the lessons learned from these pilots will help the Bank rollout a more extensive approach in the coming years. In addition, the Bank is working with partners to define a framework for global monitoring that would enable a common approach to measuring progress on implementation by both developing and developed countries of the policies and actions needed to achieve the MDGs and related development outcomes. This includes, inter alia, helping to build statistical and monitoring and evaluation capacity in client countries. 23. Scaling up is ultimately not something that is done to clients, but is something done by clients. Much of the Bank's more effective approach to client services is therefore aimed at capacity enhancement - to adapt global knowledge to local circumstances, to define better development strategies, implement better policies and programs, and build stronger institutions. Capacity enhancement work is embedded in the full range of products and services that the Bank provides, as well as in specialized interventions done by WBI in particular -where the emphasis may be less on what the Bank has to teach, but on what client countries can learn from each other. An example of this approach is the program for enhancing the capacity of regulators in the areas of water, telecommunications, and transport services. This program - a winner of the 2002 President's Awards for Excellence - includes customized training programs, support to regulatory research institutes, establishing regional forums to facilitate direct exchanges between regulators, generating ranges of knowledge products, and developing a system of certification for utility regulators. Because of the centrality of capacity enhancement for development results, we will place continued emphasis on it. Teams from across the Bank are working to increase the impact of capacity enhancement components embedded in CASs, ESW, and projects, and also to enhance the impact of dedicated skills building, knowledge sharing, and capacity enhancement activities. -10- 24. The Bank's program for assisting a country goes beyond a series of stand alone projects, or analytical activities, and has evolved into a package of formal and informal approaches, instruments, and advisory services. Such an integrated package of development services typically includes technical assistance and training to enhance client capacity, aid coordination to facilitate partnerships and leverage Bank resources, and informal policy dialogue and advice to improve policies and share knowledge (see Box 2,). Box 2. A More Complete Picture of Client Services The Bank`s primary objective is to support poverty reduction in client countries. This involves more than just delivering traditional Bank products -such as new loans and economic reports - but also working in many different ways in partnership with other donors, civil society, and governments to affect change in client policies and institutions. For example, the Regions are increasingly active in engaging with civil society around the Bank`s work. In Tajikistan, a grant was used to help in school health reform for the neediest, developed in cooperation with the parent-teacher association. In Guatemala, the government requested support for an anti-corruption initiative involving extensive interaction with civil society and the government. In another example, Bank staff involved in private sector and infrastructure issues maintain a strong partnership with UN agencies, including the World Health Organization on water and sanitation to monitor progress towards MDGs. Health and human development staff deliver our HlVlAlDS work in close partnership with the UNAIDS Secretariat and cosponsors. Efforts to better capture our engagement with civil society and partnership work are currently underway. In addition, the Bank continues share knowledge with our clients and partners - as well as learn from them - so the MNA region are requesting operational learning and technical support for statistical capacity enhancement - that we may improve our own effectiveness, and contribute to enhancing capacity in others. For example, clients in critical for monitoring progress towards the MDGs. The Bank continues to make increasing use of knowledge - providing services such as access to websites, newsletters, help desks, best practice noteslpapers, tool kits, databases, and technical notes and guidelines. For example, financial sector staff developed the Anti-Money LaunderinglCountering Financing of Terrorism Global Technical Assistance database in cooperation with several organizations to track requests and responses on these issues. While these activities contribute significantly to the Bank's leverage and effectiveness, they need to be better captured and reported. 25. The country business approach is not uniform; different groups of the Bank's clients have different needs. To meet the needs of its low-income clients, the Bank's PRSP-based approach is emphasizing client capacity and donor and partnership. For example, the Poverty Reduction Support Credit (PRSC) that supported the implementation of Uganda's Poverty Reduction Strategy paper, underpinned the government's reform program of strengthening public service delivery in basic service sectors and in some cross-cutting areas (e.g., public procurement) transferred the ownership of public expenditure programs to the client allowing the Government to ascertain fund allocation through the budget process. In addition, the PRSC has also reinforced the role of Government budget consultations with civil society, private sector and donors. 26. The Bank's middle-income clients have varying needs for lending, knowledge and advisory services, and the Bank's support to these clients varies accordingly. The Executive Directors approved the introduction of a Deferred Drawdown Option for adjustment loans in 2001, a key recommendation of a Bank task force on Middle Income Countries. Latvia is using this option in conjunction with a Programmatic Structural Adjustment Loan, the second in a series designed to sustain a growth-oriented macroeconomic framework, strengthen the credibility of the public sector, improve public services delivery, and build a transparent relationship with the private sector. In Brazil, the Bank has been providing adjustment -11 - assistance aimed at protecting vital health and education services from the effects of the fiscal austerity program aimed at improving the environment for long-term sustainable growth. In addition, clients in the MNA region are looking for sustained Bank support, even in the absence of lending, and the region is experimenting with a more results focused and multiyear approach to delivering a series of collaborative analytical, advisory and capacity enhancement activities aimed at policy reform, implementation and institutional development. Pilots are underway in Iran, Jordan, Morocco, and Tunisia, and the lessons from these pilots will be used to strengthen and refine the operational aspects of this approach. 27. In recognition of the particular needs of low-income countries under stress (LICUS), the Bank has been piloting a new approach over the last year, focusing on creative ways of facilitating policy and institutional change, emphasizing knowledge transfer, and delivering vital social services to those most in need. This approach is centered squarely at the country level, since each country has different defining characteristics and each will move ahead at its own speed. Because the Bank has not been active in many of these countries, the first step has been to encourage reparation of a country re-engagement note. Currently, LICUS strategies for seven countries are at various stages of development. Four of these are being developed R jointly with UNDP7based on an agreed framework between the Bank and UNDP. In Angola, for example, the Bank has re-engaged, preparing a Transitional Support Strategy which takes advantage of the window of opportunity provided by resumed peace. The strategy is organized around three pillars which embody the LICUS approach emphasizing social service delivery, governance, and capacity building, and is being supported by a joint Bank-UNDP work program. In other cases, the Bank has included key stakeholders from LICUS countries in regional activities and events, which has proven an effective way to interact with such countries without incurring too much downside risk. The Development Marketplace for Ethiopia and Sudan is a case in point. It allowed Sudanese stakeholders to participate in a competition for development ideas which helped identify and strengthen local capacities and gave participants an opportunity to exchange ideas on topical issues that would be relevant in a post-conflict engagement. 28. The Bank also plays a significant role in global programs and partnerships (GPPs) that are of high value to our client countries. Bank participation in GPPs has grown in recent years because of the rapid pace of globalization and calls for collective action on global issues, a growing sense that legitimacy in international action needs to be based on broader ownership, and the Bank's policy of building broad coalitions with other partners to tackle multi-country development challenges. Bank involvement helps mobilize additional financial resources, contributes to program design and policy-setting, and supports both implementation and evaluation of results. The Bank participates in about 240 GPPs with estimated total expenditures of US$1.6 billion in FY02. Of this amount, the Bank contributed $176 million via the Development Grant Facility and approximately $37 million through its administrative budget. An additional $636 million came from Bank-administered trust funds, while contributions external to the Bank accounted for the balance.8 Angola, Central African Republic, Haiti, Papua New Guinea, Somalia, Sudan, Tajikistan 7Angola, Central African Republic, Somalia, Sudan See Partnerships: An Update (SecM2002-0427), August 12, 2002. This paper includes an inventory of the World Bank's global, regional, and institutional partnership activities. - 12 - 29. Global programs and partnerships have made notable contributions in many priority areas in agriculture and health research, disease prevention and control, and in disseminating - best practices to the poor. The Bank's participation in the Global Alliance for Vaccines and Immunization (GAVI), for example, has helped increase access to vaccines among children in the poorest countries and focused attention on the importance of immunization worldwide. The Prototype Carbon Fund has built strategic coalitions with both the public and private sector to mobilize new resources for sustainable development and address global environmental problems through market based mechanisms. The Consultative Group to Assist the Poorest (CGAP) is effectively disseminating best practices in the provision of financial services to the poor; and the recently launched Financial Sector Reform and Strengthening (FIRST) Initiative assists with coordination and financing for technical assistance and capacity building activities in the financial sector of member countries. To build on such successes and to reinforce selectivity, quality and oversight, management continues to strengthen the framework for managing GPPs (e.g., standardized approaches for clarifying partnering options and reducing transaction co st^)^. 30. The client-tailored services discussed above have significantly increased the Bank's effectiveness, but they have also increased the complexity of our business - increasing the time, skills and resources required by operational teams to deliver client services. While much of this increased complexity is driven by the needs of our clients, there are areas where institutional misalignments need attention - for example, where operational and human resource policies have not stayed abreast with the needs of task teams. As discussed in the next section, Bank management is focused on how to complement a better approach to client services with increased organizational effectiveness. C. ORGANIZATIONAL EFFECTIVENESS 31. A range of organizational units, policies, and practices underpin quality client services. The Bank is continuing its focus on how best to implement its strategy, align its activities, and build its capacity with a particular emphasis over the last year on overcoming - implementation challenges, managing towards results, increasing global monitoring, aligning internal support, and harmonizing and simplifying its business. Overcoming Implementation Challenges 32. The scale of the development challenge, the range of Bank commitments to its clients and shareholders, and the complexity of its business have led the Bank to focus on a set of inter-related implementation challenges. 33. Operational units from across the Bank worked together earlier this financial year to take stock of the commitments requested of the Bank at various international meetings related to the MDG agenda - especially Monterrey, Doha, and Johannesburg. During the process, seven areas have been identified for more corporate attention: education for all; environmental sustainability; HIV/AIDS; investment climate and the financial sector; maternal and child health; trade; and water and sanitation. (See Box 3 below for further details). Each of the areas is important to a broad range of our clients and is aligned with our For the most recent information on progress in the selection and management of global programs, see Update on Management of Global Programs and Partnerships (SecM2003-0095), March 5,2003. -13- poverty reduction strategy. However, the seven are not new corporate priorities, but rather areas that require focused Bank-wide attention to overcome implementation challenges and enable the Bank to make the greatest contribution it can to these issues. The special attention on these seven areas is not fixed. As these challenges are overcome, management attention will shift to new areas that require determined corporate action. 34. A focus on these seven areas has enabled the Bank to identify a series of cross-cutting issues that need to be addressed to remove institution-wide impediments to implementation. The issues include aligning resources, managing for results, working across sectors, dealing with fiduciary and safeguard issues, enhancing capacity, skills and learning, using technology and communication more effectively. Crosscutting teams of managers brainstormed to map recommendations and to assemble roadmaps and timetables to tackle these questions - building on work already underway. Several of these issues are addressed below. 35. Improving implementation is an ongoing process. Broad goals at the institutional level are being translated into concrete targets at the country level. In doing so we take into account country needs and demand, the Bank's capacity constraints (budget and staff), and how our work can complement that of our partners. Finally, we are defining ways to track, measure, and assess progress. The main objective of this focus on implementation is to ensure that we deliver effective client services -and fully enable our task teams to do this. Measuring & Managingfor Results 36. Focusing time and resources on the results that matter most for development is critical, Therefore a continuing theme in our ongoing efforts to strengthen management is a focus on setting clear objectives, establishing monitorable indicators, linking activities with results, and then using the subsequent results to learn and to improve management decisions as we go. To put this into practice, the Bank is strengthening the results measurement system for IDA programs. The enhanced IDA results measurement system is currently being put in place during IDA13 and will be refined and mainstreamed during IDA14. This is a two-tiered system, which will measure country outcomes linked to the PRSP and MDGs and assess the success of the CAS and Bank projects in achieving their outcomes. Such approaches are challenging and dependent on strong partnerships, and will require a number of years to bear fruit. 37. Units across the Bank are taking steps at the operational level to improve the results orientation of their work. For example, in ECA, a working group reviewed ways to change existing products and processes to achieve greater results. The group enumerated three specific areas for improvement. First, they identified a number of ways to make the CAS objectives more results focused and to incorporate learning from previous CASs into new ones. Second, to shift the focus of projects more towards results, the group suggested improvements to the project status report. Third, the group examined ways to improve the results orientation of client countries. They identified 3 pilot countries (Albania, the Kyrgyz Republic and Romania) where there is sufficient analytic and client support to better monitor and evaluate the results of budget management, public expenditures and service deliveries. ECA staff will work with these countries in the monitoring and evaluation aspects of certain programs and distill the lessons learned. In addition, the region is reviewing current staff capacity in country offices to determine how to strengthen resources to assist clients in their own monitoring and evaluation efforts. - 1 4 - I .-c c cr> e c m 0 2g!m 4 a c E s P8 g .-E -0 .-EmE Y U E 3!s .-E u c c EE -I > E 38. Vital for the progress of the results management agenda is the development of a results- oriented corporate culture. Integrating performance management and measurement into our corporate strategy and budget reporting is one example of how to foster this result orientation. For the FY04-06 business planning cycle, Vice-presidents are focusing on making their Unit Compacts more results focused so that they can be used as a strategic performance contract with senior management. Over the next year, Management will continue working towards aligning processes and systems (incentives, MD monitoring through the Quarterly and annual results reports) with the objectives indicated in the Unit Compacts. The ability to measure the results we are working towards -either directly or indirectly -remains an essential challenge. Global Monitoring 39. The adoption of the Millennium Development Goals has helped to focus donor efforts on global monitoring of key target indicators and progress on policies and actions needed to attain those targets. Better data on development outcomes and better metrics for related policies and actions (by both developing and developed countries) will be needed to implement the global monitoring framework that the Bank is developing jointly with its partners in response to a request from the Development Committee." One priority is to improve social sector data, for which a coordinated effort is needed to establish a time bound process, based on country-owned data processes (including regular household surveys) and international standards, combined with a sustained effort to build capacity in country statistical systems. 40. To help address the underlying problems in a systematic way, staff are working with colleagues in UN and bilateral agencies on the DATA (Data Accountability and Technical Assistance) Proposal, building on existing statistical systems in the Bank and Fund and other international agencies and working with the Partnership in Statistics for Development in the 21st Century (PARIS 2l), which brings together donors, developing countries, and NGOs to coordinate support for statistical capacity building. A second priority is the development of more precise and robust indicators of policies and actions needed to achieve the MDGs, including upgrading the country policy and institutional assessments, developing better metrics for key policy areas such as governance, and establishing systematic collaboration with partner agencies also engaged in work on such metrics. And a third, related area for work is the need to develop and strengthen measures of developed country policies and actions in the areas of trade and aid (both quantity and quality of aid, building on the commitments made in Rome), working with international partners, such as WTO and DAC. Aligning internal support 39. Getting the right skills in the right place at the right time - strategic staffing - is addressed through the dual strategy of recruitment and staff learning. The systems and tools to help managers address these issues have been strengthened considerably over the last year. Since July 2002, the Bank has added around 230 staff to fill gaps in priority areas, and approximately 120 additional regional and network staff are likely to be recruited by the end of the financial year. The batch recruitment program, which started in early FY02, supported the efficient recruitment of staff in targeted sectors, with close attention to nationalities and diversity profiles. Batch recruitment to date includes, inter alia, the recruitment of 28 HDN professionals (a direct result of the Bank's renewed focus on MDGs), 9 Financial Management Specialists, and 6 Transport Specialists. In addition, we have close to 20 PREM staff in the recruitment pipeline. l oAchieving the MDGs and Related Outcomes: Aframeworkfor Monitoring Policies and Actions. SecM2003-0087 - 1 6 - 40. Nevertheless, staffing challenges remain. Of the new recruits, the institution needs to continue ensuring a distributionthat strongly favors the operational units. The Bank will also work to replenish the cadre of GG-level core technical staff that has been eroded over the last several years, and to supplement the need for technical expertise with broad-based, multi-sectoral integration skills -an issue highlighted at the Implementation Forum and the subject of continuing work in HRS and the Sector Boards. Issues of staff rotation - of which an important subset are directly linked to staffing for LICUS countries- have also surfaced as a priority area. All staffing actions will be considered within the continuingchallengeof enhancingour diversity environment. 41. The staff learning program ensures that our staff have the necessary skills and abilities to perform their jobs well in an ever-changing development environment. In the last year we have focused on expanding the program into country offices. As a result, 22% of our learning activities in FY03 so far have been outside Washington, DC. To help staff work effectively across sectors, the Multi-sectoral Learning Teams have been expanded across all regions. A key driver behind staff learning in the coming fiscal year will be an increased focus on results - ensuring that our staff have the skills, knowledge, and behaviors to enhance client capacity to achieve and measure results. The Learning Board is working closely with regions and sectors to strengthen areas with most need and potential impact. 42. Decentralization of Bank operations continues, guided by the 3-year decentralization framework discussed with the Board, and regional action plans. In the past year, we have developed a database and system for reporting decentralization indicators in the quarterly business review process. Continued devolution of procurement and fiduciary sector activities to country offices is proceeding - with the aim of increasing the percentage of projects having procurement sign-off authority in country offices from today's 60% to 70% in FY04. As task leadership is increasingly delegated to the field, we are focusing on strengthening task management capacity in country offices. We are enhancing quality support to team leaders and country teams by moving support services to the field. Meanwhile, we continue to focus on ensuring the cost-effectiveness of a decentralized Bank. Looking ahead, we are looking to move more internationally recruited staff to country offices, although the incremental numbers will not be large, Such staff should bring additional specialized sector and technical skills and result in greater delegation of responsibility to country offices. 43. The increased recruitment during FY03 has only partly addressed the staff overload problem in the Bank, as exhibited by the recent staff survey results that show a significant portion of our staff feel that work pressure is too high - especially true for task team leaders. Beyond a commitment to ensure that staffing levels are realistic for the amount of work required in units, management is working to remove unnecessary burdens on staff through simplification (discussed below) and address the work culture issues that may inhibit staff from taking full advantage of the range of work-life balance policies and programs already available. Harmonizing and Simplijjing our business 44. Harmonizing and simplifying our business is critical to working more efficiently and lightening the burden on our clients and staff. This agenda will require continued work with our partners to harmonize policies, procedures and practices, a simpler policy framework, a more flexible range of lending products, and streamlined processes supported by tighter management at all levels. . Harmonizing our policies and practices with other donors remains a priority for the Bank. Management works with two technical groups (OECD-DAC and MDBs) on - 17- reducing transaction costs and streamlining technical requirements across partners in the areas of financial management, procurement, environmental assessments, pre- implementation stages of the project cycle, country analytic work, and monitoring and evaluation.'' The recent High Level Forum on Harmonization in Rome12 endorsed the work of these two technical groups, and committed to implement these practices at the institutional level and within country programs. In addition, the Bank is working to further streamline and simplify the legal documentation used by the Bank, and will be exploring with the other MDBs their interest in harmonizing the legal documentation used by the MDBs. The Bank is updating its operational policy and procedures on adjustment lending in a new Operational Policy/Bank Procedure (OPBP) 8.60, based on broad public consultations with governments, civil society, and academia. An important objective of the planned policy update is to emphasize country ownership and to strengthen the effectiveness of policy-based lending by enhancing its results-focus, and customizing it to country needs. It is also proposed is to replace the prescriptive guidance of the content and nature of country programs in the current policy by focusing the new policy on the way in which the Bank assesses, advises and supports country programs. The Bank launched an Ideas Fund to finance staff proposals from the President's Contingency in support of the simplification agenda. The Fund recently made its first award to a quality assurance team in LAC, which developed guidelines to streamline . environmental and social safeguards within health, education, roads, and Prototype Carbon Fund projects. In the area of investment lending projects, a newly proposed scaling-up mechanism will allow new operations to build on existing well-performing projects resulting in quicker . projects by up to 50%.13 approval, with reduced documentation - cutting the time for processing of simple The simplification of the current investment lending framew~rk'~ result in a singlewill umbrella of operational policies and better tailoring our lending instruments to the needs . of each country.I5 In addition, lighter project documentation with more management value will increase our focus on timely quality reporting and results management. Financial management and disbursement practices are also being adapted to the changes in the risk profile towards more programmatic lending and partnerships. The Bank introduced more flexible financial reporting requirements for borrowers and new fiduciary arrangements to facilitate sectonvide approaches, including pooled financing arrangements. The Bank's audit policy is being revised to introduce flexibility to better match borrower needs. Controller's has also embarked on a multi-year decentralization of '' For example, a joint Country Analytic Work website was launched in October 2002. At present, fifteen multilateral and bilateral institutions have participated by sharing their country analytic work documents, toolkits, and guidelines. l 2On February 24-25, 2003, heads and representatives of MDBs, IMF, bilateral development institutions and partner countries gathered in Rome, Italy, to discuss the harmonization of their policies, procedures and practices. l 3See Building on Success: More EfJicient Processing of Repeater Projects, SecM2003-0034, January 28,2003. l 4Currently the investment lending policy framework encompasses 7 investment lending instruments and 55 policies. See Streamlined Processing for Qualifiing Investment Projects, SecM2003-0034, January 28, 2003; and Meeting the Implementation Challenge: The Process of Modernizing Operational Polices, Instrument, and Processes. SecM2003- 003411, January 30,2003 - 1 8 - disbursement functions. Decentralization to Regional processing centers is intended to speed disbursements and problem solving, promote better fiduciary assurance through closer integration with financial management and procurement, strengthen client capacity, improve project outcomes, and strengthen business continuity arrangements. The emerging vision for our procurement system will rely more on clients' systems, with the Bank's emphasis on monitoring compliance. Such an approach should increase speed and transparency, and will simplify the process and lower costs through fewer transactions and quicker clearances. The approach also intends to build client procurement capacity, and harmonize policies and procedures across donors. 45. To complement its work on harmonization and simplification, the Bank is improving transparency about its activities and results through implementing a new policy on public disclosure and a more systematic approach to translation. The new disclosure policy -the first extensive revision since 199316- provides for the release of a greater number of lending-related documents, including the Program Document and the Tranche Release Document for adjustment operations, as well as the Implementation Completion Report (ICR). The revised disclosure policy should also lead to substantial improvements in access to information through Bank's country offices. 46. This chapter has outlined the Bank's progress in implementing its strategic framework. The chapter suggests that the Bank's portfolio of client services is evolving to meet client needs, and that the Bank's approach to scaling up - leveraging our impact through partnerships and knowledge, building the effectiveness of our approaches through a focus on results, and increasing the volume of our assistance where required - is challenging but on track. Bank management is also focused on ensuring that its management systems, policies, and procedures are broadly aligned with this thrust. 16See The World Bank Policy on Disclosure of Information, June 2002, The World Bank, Washington DC, - 1 9 - CHAPTER 3: FRAMEWORK FOR WORK PROGRAMS AND RESOURCE REQUIREMENTS-FYO4-06 47. Chapter 1 demonstrated that scaling up progress towards the MDGs is the overarching priority of the international development community, and reaffirmed the Bank's strategic framework. Chapter 2 discussed the Bank's focus on implementing this framework, including the provision of a broad range of high quality client services and a systematic focus on organizational effectiveness - both within a growing focus on results. Chapter 3 outlines the Bank's planned response to the scale of this challenge in light of the lessons learned over the last few years. The Chapter starts by outlining the Bank's approach to scaling up, translates this approach into a framework for the Bank's FY04-06 work program, and then presents the associated resource requirements - within the context of the Bank's integrated resource framework. This work program and resource framework is consistent with the three year framework outlined in last year's budget doc~ment.'~ A. SCALING UP IS THE PRIORITY 48. The Bank's approach to scaling up has evolved out of its work with clients and partners, and is guided by the discussions at Monterrey, Doha, and Johannesburg. The Bank recognizes that while lending more money or providing more knowledge products is important, they are not sufficient to meet the scale of the challenge, nor the expectations of our clients, partners, and the public at large. The Bank is therefore working to scale up its contribution through two additional thusts: . To leverage its resources - both human and financial - the Bank is working in partnership at the country, regional and global levels. Partnership includes working with the client and other donors, country by country, in programmatic approaches that move beyond individual projects to better leverage both finance and knowledge. The Bank also . acts as an advocate for development issues in international fora, using its technical expertise to support global approaches to global development problems. To make its programs more effective, the Bank is emphasizing the importance of knowledge and capacity enhancement in development, focusing each activity - including its lending - on supporting clients to develop better policies and more effective institutions. Traditional deliverables are increasingly being supplemented by a range of other development services, and single sector approaches by multisector ones. Effectiveness also requires selectivity - focusing the Bank's resources on places and issues where they will have the greatest effect and provide opportunities for learning. 49. These thrusts are being enhanced by an increased focus on results, including defining a common set of indicators for measuring global progress towards the MDGs, placing results at the center of our country assistance strategies, and integrating results into the systems through which we manage ourselves. By increasing our attention to development impact, we will be more likely to look beyond the number of products to their effectiveness and leverage. l 7World Bank Programs and Budgetsfor FY03, May 24,2002 Sec R2002-0100 - 20 - B. CLIENT SERVICES ARE STRENGTHENING 50. This section outlines the work program framework designed to achieve the scaling-up objectives described briefly in the previous section, and outlined more fully in Chapter 2. Within the framework, emphasis is being placed on enhancing the effectiveness of our client services, 51. The work program framework outlined in this chapter is based on early planning done by the units and is included here at an early stage in the Bank's annual business planning process in order to provide an opportunity for timely discussion with the Board. Detailed work programs and budgets (which will be presented in the subsequent Work Program and Budget document scheduled for discussion by the Board in June) will be developed over the coming months and may differ somewhat from this framework based on guidance from the Board, additional work done by management and staff, and the impact of external events. 52. As discussed in Chapter 2, aggregate descriptions of the Bank's client services do not sufficiently capture the diversity of client needs and the tailoring of Bank strategies at the regional, sectoral, and country levels. Box 4 demonstrates selectivity at the regional level aimed at adapting the Bank's approach to meet evolving client needs. The Africa Region, for example, plans an increased focus on LICUS countries, while clients in Middle East and North Africa are seeking significant support in the area of water and sanitation. 53. Looking across sectors and themes, Regional plans for FY04-06 show increases in Bank support in the areas of human and rural development. The sector cut also shows an increase in Bank support to water and sanitation. Many of the Bank's operations span several sectors. For example, about 30 percent of all coded infrastructure projects in the pipeline also include health components as well. A fuller overview of sector and thematic trends in the Bank's portfolio is included in Annex 2. 54. Our knowledge products - including analysis, advice, and technical assistance - will remain at the increased level achieved over the last year in order to continue our focus on developing and sharing knowledge and capacity with our clients, as shown in Table 4. The number of PRSPs is projected to be slightly lower through FY06, primarily because the initial start up phase of the PRSPs will be complete. However, we expect rising numbers of PRSP Progress Reports from FY04 onwards. As planned in previous years, we will complete our core diagnostic ESW coverage for our largest and most active clients by the end of FY04 to support policy dialogue, strategy formulation, and lending activities. The number of other ESW products, such as policy notes and workshops, which have increased significantly in recent years, is also projected to continue at that higher level. As the lessons from the five results-focused CAS pilots become available, we will apply these to each CAS in the pipeline. -21 - I1 Table 4. Strategy, HIPC and Knowledge Products and Services: FY03-06" FY03 FY03 FY04 FY05 Fyo6 Budget Estimate Work Program Framework I .............................................................................................................. Poverty Reduction Strategies (JSAIPRSP) & Progress Reports 25 21-25 32-39 31-43 33-45 ................. ................................................................................................................................................................................................................................................................3 Country Assistance Strategies (CAS) and CAS-like products 41 38-40 32-37 32-37....................................................... 32-37 ................................................................................................................................................................................................................................................................á HIPC Documents 15 6-7 Work Products (ESW), of which: 612-667 604-685 605-690 620-705 620-705 280-320 275-295 287-314 290-315 290-315 ................................................................................................................................................................................................................................................................Ý Core Diagnostic Reports 144-154 124-130 140-150 136-143 136-143 ............................................................................................................... Other Diagnostic Reports ................................................................................................................................................................................................................................................................Q 50-55 40-47 49-57 50-60 50-60 ..................................................................................................................................................................................................................... Country Advisory and Reg 0rts 86-111 111-118 98-107 104-112 104-112 ................................................................................................................................................................................................................................................................â Policy Noteslother Products 170-185 209-225 198-211 210-225 210-225 ............................................................................................................ Network ESW Products 162 120-165 120-165 120-165 120-165 Sector Strategy Papers and Updates I Progress Reports 3-4 5-7 2-4 2-4 2-4 11 *Annex 1includes a complete deliverables table with associated explanations. It 55. The number of new loans is expected to increase slightly through FY06: 233-263 in FY04-06 (Table 5) compared to 230-250 expected in FY03 and 235-242 in FY00-02 (Shown previously in Table 2). Table 5. Lending Services: FYO3-06* Budget Estimate Work Program Framework II ............. FY03 FY03 FY04 FY05 FY06 Number of................................................................................................................................................................................................................................................................¯ Loans, of which: 241-261 230-250 233-263 233-263 233-263 IBRDllDA 235-255 225-245 230-260 230-260 230-260 It11 Special Funding (Kosovo, E. Timor, WBG) 6 5 3 3 Global Environment Facility (GEF) 25 22 24 24 11 Guarantees 1 1 2 1 No. of Projects under Supervision (incl. Special Funding) 1,765 1,760 1,748 1,725 1,698 *Annex 1 includes a complete deliverables table with all associated explanations. 56. As Chapter 2 demonstrated, the desire to build a more effective country business approach and to leverage resources more effectively has led the Bank into different approaches to delivering its traditional products - such as participatory ESW which aims to strengthen client ownership and build local capacity while benefiting from local knowledge. While the increased effectiveness of these new approaches is real - ESW that is participatory, for example, is consistently given higher ratings by QAG -the average cost of delivering some of these products is rising. 57. Steady improvements in quality have been made since FY96, although several portfolio indicators for FY02 returned to levels observed in FYOO. The FY04-06 targets for both quality of projects at entry and for ESW is 90%+. To maintain the quality gains made in recent years, we will continue to be proactive in resolving emerging problems. - 23 - 58. To leverage its traditional business model, the Bank is also providing a variety of other development services - such as the Nile Basin Initiative mentioned in paragraph 22 - that are not fully reflected in either lending or ESW deliverables. As these activities are generally under- measured at present, they may also be a contributing factor to the upwards pressure on the unit costs of traditional deliverables that the Bank has experienced. For example, much of the informal policy dialogue may be recorded as part of a lending or ESW product when it is not, strictly speaking, a direct cost of that deliverable. (See also Box 2 on page 11). 59. In FY04-06, we will continue to implement the results agenda which involves increased measuring and monitoring of results, and the increased use of those results in management decisions by the Bank and clients. The Bank's work on establishing a framework for monitoring policies and actions for achieving the MDGs will require the promotion of data reporting standards, strengthening databases, and building statistical capacity in client countries. Units from across the Bank are also working together to build a new IDA results measurement system - as requested in the IDA13 agreement. To strengthen the Bank's internal planning and budgeting cycle, units are working to make their annual unit compacts more results focused in the medium-term - but starting within the current planning cycle. In addition, the pilot results- based CASs will be completed, and the Bank will start to apply the lessons of these pilots in the coming years. To ensure that Bank wide efforts toward a sharper operational focus on results are appropriately coordinated, the Bank is building its own capacity to synthesize and support this agenda. 60. Much of this work may not translate into quick wins, but is necessary to build an effective medium-term approach to measuring and managing for results. While much of the results agenda involves doing similar things better, there are some incremental costs involved. C. Resource Implications 61. The FY04-06 budget framework outlined in this section is consistent with the framework proposed in last year's Budget Document. In the FY03 Budget Document a $35-45 million increase was proposed for FY04. Current estimates are consistent with but at the upper end of the range. Increases of $10-15 million for FY05 (also consistent with last year's framework) and $15-25 million for FY06 reflect the cost of the continued need to scale-up our impact and uncertainties in the outer years. 62. The FY03-05 budget framework outlined in last year's Budget Document built on an FY03 expenditure framework of $1,376 million in FY03 dollarsI8,which was funded through a base budget of $1,356 million, and through pre-programming anticipated carryover of $20 million - with the understanding that this was done on a one-time basis and would increase pressure on this year's budget by an equivalent amount (see Table 6). The proposed framework for FY04 included an additional $15-25 million linked to increases in the FY04 work program, resulting in the proposed budget increase of $35-45 million in FY04. 18FY03 budget is $1,333 million in FY02 dollars. It includes ongoing expenditure of $10 million per annum for business continuity (this administrative cost, as well as the $20 million capital budget, were was included in the FY03 Budget Document, contingent on separate Board approval). - 24 - Table 6. Summary of the FY03-05 Budget Framework from the FY03 Budget Document in FY03 $ millions) - Budget Changes FY03 FY04 FY05 Operational Units .......................................................................................................... Regions 822 10-15 10-15 ................................................................................................................................................................................................................................................................¥ Network Anchors 144 ......................................................................... Other Operational Units 128 5 Subtotal: 1.095 15-20 10.1 5 Finance,Administrative and Corporate Units II II 393 0-5 - Subtotal: All Units I,488 15-25 1/III Central Accounts and Reimbursables Subtotal: Net Administrative Budget a/ 1,376 15-25 Carrvover 20 - II central account^'^ means that FY03 expenditure will be close to the original FY03 expenditure 63. Current projections of a $12 million under-run in the units, and $35 million remaining in framework of $1,376 million. The unit under-run is subject to some uncertainty, but is expected to remain significantly lower than in FY02 reflecting the tighter budget management practices which are now in place. It is worth noting that in contrast to most international financial institutions, the Bank's FY03 budget and expenditure framework remain below 1995 levels in real terms. 64. Building on the FY03 experience, the proposed framework for FY04-06 is in line with that proposed in last year's Budget Document. As part of the planning process, some $90 million of budget requests were identified to respond to client demand and external requirements, and to strengthen the effectiveness of our services. These proposals were reviewed and prioritized by Senior Management in the context of the budget framework proposed last year. The resulting unit work programs are expected to drive increased budget requirements of $40-50 million in FY04 (See Table 7), compared with the initial framework of $15-25 million, with further increases in FY05 and FY06. A significant part of this increase - $15-17 million - results from external and other requirements that were not anticipated at the time the FY03 Budget was set, and were therefore not included in last year's FY04-05 framework. Quarterly Management Report: FY03 Quarter 2, SecM2003-0061, February 11,2003. - 2 5 - Table 7. Increases in the FY04-06 Work Program Framework (inFY03 $ millions) Incremental Cost FY04 FY05 FY06 11 Client and SUDDO~~ Services YII 11 I ................................................................................................................................................................................................................................................................r Client Services 20-27 10-15 15-25 ............................................................................................................................. Global Services and Operational Support ............................................................................................................................................................................................................................... 2-3 Support Services 3 Subtotal 25-33 10-15 ................................................................................................................................................................................................................................................................r External and Other Requirements 15-17 Total Units 40-50 10-15 15-25 65. A $20-27 million increase is projected in client services. This reflects sustained levels of deliverables, though with increasing unit costs, and work with our clients on new development services (see Box 2 on page 11). Further shifts in this direction drive increases in FY05 and FY06. A small increase is projected for global services and operational services, in line with the framework established last year. The flat FY05-06 envelope for these services is a net amount reflecting redeployments to cope with changing priorities and unexpected demands. An increase in the order of $15 million is projected for support services, reflecting additional funding for depreciation, maintenance of systems and for emerging priority business needs (such as increased HRS support to decentralization and staff learning). This is partly offset by some $11 million of savings. Further savings will be targeted in FY05-06 to provide flexibility to deal with unforeseen new demands. 66. In addition, increases in work programs reflect $15-17 million linked to external and other requirements. For example: .. Resources to implement the results agenda, and develop global monitoring (as described in paragraphs 36-40) are estimated at $7-8 million in FY04; Additional resources are also required to implement policies on Disclosure and Public Information Centers2' ($4 million for Public Information Centers, and $1-2 million for expanding the translation of Bank documents); External audit fees are projected to increase by $2 million; and, Finally, ongoing expenditures of $10 million per annum on the medium-term business continuity plan are already included in the budget framework2'. 67. In addition to funding the above $40-50 million increase in unit work programs, a $20 million increment is required to support activities that were funded in FY03 through the pre- programmed carryover. This will be offset in part by $25 million of projected savings in Central Accounts, and increases in reimbursables following negotiation of additional airline discounts. 2o See Strengthening Public Information Centers, January 8, 2003. SECM2003-0008, and A Document Translation Frameworkfor the WorldBank, January 8,2003. SECM2003-0007. '' A Board update on progress will be scheduled for September 2003, together with an initial outline of the longer- term business continuity plan. As a result, the proposed FY04 budget framework is projected to increase by $35-45 million. Current planning indicates that requirements are likely to be in the upper end of this range. Increase in the spending authority will be more limited since the Carryover Policy was amended by the Board in late 200222 reducing the maximum unspent resources carried over to the subsequent fiscal year from 5% to 3% of the total administrative budget, or from $65 million to $40 million (See Table 8). Table 8. Summary of the Revised FY04-06 Budget Framework (in FY03 $ millions) Budget Changes FY03 FY04 FY05 FY06 Operational Units Regions ........................................................................................................................................................................................................... 822 25-30 ................................................................................................................................................................................................................................................................S 272 1-3 ....................................... 7 ................................................................................................................................................................................................................................................................OE 1,095 33-40 10-15 15-25 ................................................................................................................................................................................................................................................. 393 7-10 ................................................................................................................................................................................................................................................................OE Subtotal: All Units 1,488 40-50 10-15 15-25 ............................................................................................................................................................................................................................... (112) (25) ...................................................................................................................................................................................................................... rry Over (20) 20 tal: Net Administrative Budget (net of carryover) a/ 1,356 35-45 10-15 15-25 a/ NetAdministrative Budget includes $10m for Business Continuity 68. Further increases of some $10-15 million in FY05 and $15-25 million FY06 are projected in the operational units, primarily to deliver client services. Budget frameworks for Network Anchors and Other Operational units, and Finance, Administrative and Corporate units are not projected to increase materially in the outer years. These units will be encouraged to build flexibility into their medium-term planning frameworks in order to cope with changing priorities and unexpected demands. 69. As indicated in last year's budget framework, funding for DGF is projected to increase by around $25 million in FY04, reflecting a return to previous levels of funding for PACT (Partnership for Africa Capacity Building), which also includes funding for the Africa Virtual University. An allocation to PACT of $26 million is projected for FY05 increasing cumulative contributions to $150 million as indicated in the original Board paper. Contributions to pensions, though uncertain at this stage, are expected to increase from the indicative $80 million in the FY03-05 framework to around $140 million. This estimate will be refined for the Pension Finance Committee in April 2003. 70. As part of the FY03-05 budget framework, overall staffing numbers were extracted from strategic staffing plans and indicated in the FY03 budget document. They pointed to significant recruitment in FY03 in order to deliver higher level of client services and address a 22 Review of Bank Policy on Carryover of Unspent Budget Across Fiscal Year, R2002-0198, October 22,2002. -27- shortage of specific skills. Further recruitment in country offices was indicated for FY04-05. Current staffing levels are 2.7% up from the end of FY02 (8,678 at the end of January 2003). By year-end, staffing levels are expected to be close to 8,800, which is at the low end of the 8,750- 8,950 range proposed last year. 71. The early business planning indicates that additional recruitment will mainly be needed in country offices. Some growth of international staff based in country offices is expected to support transfer of task management to the field and mentoring of country office staff: the cost of this growth has been factored in the budget framework. Growth in headquarters will be in areas where gaps in technical skills are critical. The planning process will refine this outline and further details will be presented to the Board through an update of the Strategic Staffing Update Paper (scheduled for Board discussion in June 2003). The staffing implications of the proposed work program for FY04 will be towards the upper end of the staffing ranges indicated last year. D. Net Income Contextfor Resource Planning Frameworkfor FY04-06 72. Management has assessed the Bank's capital needs and alternative uses of income. As discussed with the Board previously, the administrative budget is not the primary shock absorber for short-term changes in available income. Based on its assessment, Management has concluded that the overall FY04-06 resource envelopes, as indicated in this paper, represent a prudent use of the Bank's resources. The integrated resource planning framework presents all resource allocations in the context of available gross income and competing uses. In developing this framework, we have included projected increases in Bank contributions for the Staff Retirement Plan (SRP) and Retired Staff Benefits Plan (RSBP) in FY04-06. 73. The proposed resource framework is consistent with IBRD's net income situation. Allocable net income in FY03 is currently projected to be about $1,610 million. - 28 - E. CONCLUSION 74. In conclusion, we are continuing to strengthen our delivery of services to help our clients meet the challenge of achieving sustainable growth in an increasingly difficult global environment. While lending more money or sharing more knowledge are important, they are not sufficient to meet the scale of the challenge, nor the expectations of our clients, partners, and the public at large - and we will therefore continue to work on increasing our leverage and effectiveness. Our estimates indicate that, by making internal re-deployments, and some savings in central accounts, we will be able to meet the cost of these improved client services, together with a number of additional external commitments, within the upper range of the $35-45 million increase outlined in the FY03 Budget Document. Based on current projections of outputs and costs, we anticipate hrther increases of $10-15 million in FY05 and $15-25 million FY06. These proposals are consistent with our preliminary estimates of net income. We will develop our specific proposals on FY04-06 budget in consultation with the Budget Committee and Board. Within that framework, the final proposal will be developed based on the business plans of the units for inclusion in the Work Program and Budget Paper to be discussed in June. - 29 - ANNEX 1. WORK PROGRAM AND QUALITY INDICATORS: WOO-06 'FYO2actualsfromFY02RetrospectiveandFourthQuarterManagementreport a/ These estimates are tentative and are all subject to change. PRSPs and interim PRSPs are prepared by the countries and their timing necessarily reflect the countries own circumstances and decisions, FY03 mid-year includes 3 progress reports not previously recorded in the Budget Document FY03 targets. Furthermore, the outer year estimates include JSAslPRSP annual progress reports. bl Includes Full CASs, Progress Reports, Transitional Support Strategy, and Reengagement Strategy. cl Includes preliminary documents, decision point, and completion point documents. dl These include both Regional and Network ESW products. el For FYOI, aggregate numbers of reports and other products reflect a reclassification of a policy note to a full-fledged report. fl Reports critical for the CAS and the Bank's overall policy dialogue. These include Poverty Assessments, Public Expenditure Reviews, Country Economic Memorandums IDPRs, Country Financial Accountability and Country Procurement Assessment Reviews. gl Reports which address sector-specific or thematic issues and provide upstream analysis to support future lending. hl Aggregate Network FY03 in FY03 Budget document (Table 2.3) was 188 deliveries, which included 54 deliveries by PSI. The PSI compact was re-negotiated at 43 deliveries; revised target is reflected in Vol II. The PSI Network Anchor plan has also been reduced by 15 ESW reports for which the regions are now responsible. These reports appear in regions FY03 Plan. il Includes Sector Strategy Papers (SSPs), SSP Updates and progress reports. FY03 budget range is for SSPs only. Midyear number include full, updates and progress reports. jl These ranges do not necessarily equal the sum of Regional submissions. They are a conservative aggregation, reflecting uncertainty and volatility at the country level. kl Percent of projects under implementation with satisfactory ratings on supervision, per QAG's annual review. I/ Preliminary QAG rating for quality of ESW delivered in FY02 by number of tasks reviewed. m l FYO2 estimates are preliminary based on Partial data. nlThis series has a discontinuity at FY02 due to fine-tuning of riskiness rating; for FYO2 old series rating was 15% (v. 19%). ol Based on revised series the value of the FYO2 realism was adjusted to 59%. pl Based on 93% completed sample; rlActuals; The numbers for Quality of entry, supervision and ESW are estimates. ANNEX 2:EVOLUTION OF BANI< WORK PROGRAMS ACROSS SECTORS AND THEMES: FY03-FY06 1. Since our work programs are designed to meet the dynamic needs of our clients, it is important to be able to monitor accurately the current and projected distributions of the Bank's work programs. The coding system adopted in FY02 helps us better track the distribution of our goals/objectives of Bank activities, and (2) sectors - indicating the parts of the economy that administrative budget and work programs along two dimensions: (1) themes - corresponding to the directly benefit from Bank's support23.While improvements of data quality are still in process, and data in BPRT for FY05-06 are preliminary, this section illustrates that the broad trends and composition of the Bank's planned budget allocation for FY03-FY06 are consistent with the Bank's priorities. 2. Many of our work programs serve multiple development goals in our client countries. For example, about 43 percent of our ESW works and 75 percent of our programs on lending preparation and project supervision are targeted at more than one development theme. Themes 3. The thematic distribution trends of the Bank's administrative budget allocation across the 11 themes (Figure 1.) show more resources being allocated to human and rural development. The budget share for "human development" is projected to rise significantly over the FY02-06 period, reflecting the Bank's increasing attention to areas vital to achieving the MDGs, such as education for all, fighting communicable diseases (especially HIV/AIDs), and improving maternal health and reducing child mortality, More resources will also be devoted to addressing rural poverty and development through creating a conducive investment climate in rural areas by building up rural markets, services and infrastructure and enhancing rural development policies and institutions. Figure 1. Thematic Distribution of Country Programs: FY02 -FY06 (% of the Total Budget for Themes Activities) 18 ............................................................................................... FY02ktual FY03 Est. 0 FY04 FYO5-06Avg. ......................................................................................................................... ........................................................................................................ ................................. .......................................... ....................... Human Financial & Public Sector Environment& Rural EconomicMgnt Social Dew. Urban Social Trade & Rde GI Law Development PSD Gov. Nat. Res.Mgnt Development Gender, Development Protection8 Integration inclusion Risk Mgnt 23Together with the Business Planning and Reporting Toolkit (BPRT) this coding system is used to achieve internal consistency in planning, budgeting, and monitoring of operational activities - which will in turn will enable greater cross-country comparability and transparency in trade-offs across programs. - 31 - 4. The emphasis on "human development" in country work programs (See Figure 2.) is projected to be strong in Africa and South Asia, while programs focused on "rural development", "public sector govemance", "financial and private sector development", and "environmental sustainability" are planned in all regions. Other areas of emphasis vary across regions reflecting client demand. For example, AFR on "trade and integration", EAP on "urban development" and "rule of law", ECA on "social protection" and "economic management", and LCR and MNA on "social development, gender and inclusion". Figure 2. Thematic Distribution of Country Programs by Region (Annual Average during FY02-FY06) 100% 0Ruleof Law W Trade & Integration 80% W Social Protection & Risk Mgnt 0UrbanDevelopment 60% W Social Dev. Gender, Inclusion Economic Mgnt 0Environment& Nat. Res.Mgnt 20% 0Public SectorGov. W Financial & PSD 0% Human Development AFR EAP ECA LCR MNA SAR Sectors 5. The sector trend of budget allocation shows increasing support for "health", "education" and "agriculture" (Figure 3.). The "law, justice and public administration" sector is projected to maintain its role as a key strategic focus and accounts for more than 25% of the Bank's administrative budget allocated to sectors. This reflects the Bank's continuing emphasis on supporting economy-wide reforms, improving govemance, enhancing institutional capacity, and strengthening security and social inclusion in the our client countries. - 32 - Figure 3. Sectoral Distribution of Country Programs: FY02 -FY06 (% of the Total Budget for Themes Activities) 35 ............................................................. ................................................................ ........................................ 30 .......................................... ............................................... FY02ktual IFY03Est. 0 FY04 HFYO5-06Avg. 25 ................................................................. ............................................................................................................ 20 .............................................................................................................................................................................................. 15 ................................................................ ...................................................................... 10 ......................................................................................... 5 ........................ 0 Law, Justice, Pub AgricuHure, Education Mer, Sanit, Transporfaton Finance Energy &Mining Indusky &Trade Information & Mmin Health, mer SOC.Serv Fishing& Flood Pro4 Com Fore&'y 6. The importance of "law, justice and public administration", "health", "education" and "agriculture" are evident in regional programs (Figure 4). Each Region, however, has additional sectors of emphasis. For example, "water, sanitation and flood protection" is a critical sector for a water-stressed Region like MNA, and "finance" is important in LCR, reflecting the regional focus on improving investment climate by reforming the financial sector. Figure 4. Sectoral Composition of Country Programs: FY02 -FY06 (Annual Average during FY02-FY06) 100% 90% W Information & Com 80% W Industry & Trade 0Energy & Mining 70% 60% W Finance 50% Transportation W Water, Sanit, Flood Prot 40% 30% 0Education 20% Agriculture, Fishing & Forestry Health, Other SOC.Sew 10% Law, Justice, Pub Admin 0% AFR EAP ECA LCR MNA SAR - 33 -