Corporate report

FCDO response to ICAI review on the UK’s support to the World Bank’s International Development Association

Published 12 July 2022

This was published under the 2019 to 2022 Johnson Conservative government

The FCDO welcomes ICAI’s finding that the UK is the ‘most influential’ donor to the World Bank’s International Development Association (IDA).

ICAI recognises that the UK’s influence over IDA rests not just on the scale of our funding, but on our ‘intellectual contributions and agile networking’, utilising our ‘world-class global diplomatic and development network’, and evidencing that the UK’s policy and political leadership was the most effective way of engaging the World Bank. We support ICAI’s judgment that this influence can be sustained in the future even when the UK is not the largest donor to IDA.

We are pleased that ICAI highlights the UK’s strong record of shaping IDA to focus on our key priorities, including unlocking the potential of women and girls, mobilising private investment, supporting fragile states through life-saving response to crises, and scaling efforts to tackle climate change and global health security. ICAI is also right to say that IDA is effective in supporting the world’s poorest countries and provides excellent value for money to UK taxpayers.

The UK’s new International Development Strategy sets out how we will spend more on bilateral programmes, empowering the UK to deliver more aid directly to where it is needed, while maintaining essential partnerships with multilateral organisations such as the World Bank. As a result, the UK’s pledge to IDA’s twentieth replenishment - the third largest donor contribution – is a reduction compared to our previous pledges, bringing our share of donor contributions to IDA more in line with our share of global ODA.

Recommendation 1

Climate targets: FCDO should advocate for more action-focused targets for IDA climate change action, particularly on adaptation.

Response: Partially accept

We agree that the Bank has a critical role to play on tackling climate change, and particularly on adaptation. However, the Bank now has several stretching action-focused targets, commitments and tools that are strengthening IDA’s action on climate, some of which were agreed recently in the IDA20 replenishment. We therefore intend to focus on closely monitoring IDA’s progress on delivering these existing commitments, rather than advocating for further new targets at this time.

The World Bank launched the Climate Change Action Plan 2021-25, which the UK played a leading role in shaping ahead of COP26. This included a commitment to raise the share of IDA finance containing climate ‘co-benefits’ from 30% to 35%, with at least half of this for climate adaptation. This will make a critical contribution towards delivering the $100 billion climate finance target and the ambition in the Glasgow Climate Pact for increasing adaptation finance specifically. While we accept that there are some limitations to the Bank’s climate co-benefits methodology, this target remains an important tool for demonstrably increasing the volume of finance that the Bank is providing to tackle climate change, including for adaptation.

The World Bank has made additional commitments that will strengthen IDA’s climate change action, including on adaptation. For example, the Bank has committed to align IDA’s portfolio to the Paris Agreement by June 2023. It has also introduced new Climate Change and Development Report diagnostics, which will use climate data to inform country strategies and implementation. Furthermore, IDA20 includes new commitments to support its client countries to adapt to climate change, including by strengthening preparedness to climate-related shocks and supporting the development of Long-Term Strategies.

These actions, alongside new indicators in IDA’s Results Management System – including to track the number of countries supported to develop or implement their National Biodiversity Strategies and Action Plans, and the percentage of IDA operations with substantial climate co-benefits including at least one climate change indicator in the results framework – will allow the UK and other donors to hold IDA accountable for driving more concrete action on climate change in IDA countries.

Recommendation 2

Country relationships with IDA: FCDO should set more systematic objectives for engaging the World Bank at country level.

Response: Partially accept

We agree the creation of FCDO provides an opportunity to strengthen the UK’s engagement with IDA, utilising the FCDO’s international diplomatic network. However, we do not agree that setting further systematic objectives for engaging the World Bank at country level would necessarily be effective in strengthening these relationships.

As the ICAI report acknowledges, World Bank staff and other donors already view the FCDO as ‘systematic and successful’ in influencing IDA’s strategic direction, assisted by agile and effective partnerships between policy teams in Whitehall, our Board representatives in Washington DC and our network of posts.

We do, however, agree that these country relationships can be further strengthened, particularly by encouraging FCDO posts outside of the former DFID country office network to engage closely with shaping and assessing World Bank country strategies and projects. We will therefore respond to this recommendation by building the capacity of these posts to engage more effectively with their World Bank counterparts.

Recommendation 3

Leave no one behind: FCDO should hold IDA accountable for meeting the ‘leave no one behind’ commitment, including by advocating for the operationalisation of its ‘co-prosperity goal’.

Response: Partially accept

The UK already holds IDA accountable for ‘leaving no one behind’. We do this by using our Ministerial-level engagement, representatives on the Board in Washington DC, and global network of posts to actively shape and monitor IDA’s portfolio to ensure both its goals are central in its work. For example, at the Spring Meetings in April 2022, the Minister for Africa, Latin America and the Caribbean used her intervention in the Development Committee to stress that the economic benefits of IDA’s work must be felt by women.

However, we accept there is a major challenge in assessing progress against the Bank’s shared prosperity goal in IDA countries because of a lack of data. The Bank’s Equitable Growth, Finance and Institutions Vice Presidency (EFI) produces biannual reports on shared prosperity which demonstrate what progress is being made on ‘leaving no one behind’. Unfortunately, there are significant gaps in the data for 90 out of the 200 client countries, particularly IDA countries.

To better hold IDA to account for operationalising the shared prosperity goal, we will focus on advocating for better data that would allow EFI and the IDA Results Measurement System to better track progress towards achieving it. This will include monitoring the delivery of the policy commitment in IDA20 to support nearly half of all IDA countries to increase their statistical capacity, including disaggregation by sex and disability, to build better and more resilient systems for evidence-based policy making.

Recommendation 4

Environmental and social safeguards: FCDO should work constructively with World Bank management and other donors to improve the Bank’s capacity to monitor and oversee implementation of environmental and social safeguards.

Response: Accept

The UK strongly influenced the design of the World Bank’s Environmental and Social Framework (ESF), approved by the Board in 2016. This has strengthened the Bank’s standards on issues such as emissions and non-discrimination. Throughout the ESF reform process, the UK encouraged the World Bank to focus more systematically on building the capability of client countries to manage environmental and social risks. Once the ESF was approved, the UK and other shareholders agreed with the Bank that additional staff were required to deliver it. Since then, the World Bank has hired and trained over 100 environmental and social specialists.

Although the Covid pandemic slowed the roll out of the new ESF, including the provision of technical assistance at country level, the Bank has continued to train staff and is now accelerating work to ensure borrower countries can fully implement the new standards, particularly in fragile and conflict affected contexts.

FCDO will continue to monitor implementation of the ESF. This will include assessing operations updates from the Bank, engaging the Global Director for the ESF, closely monitoring implementation of the grievance redress system, and monitoring independent panel investigations to ensure lessons are being learned. We will also continue to probe specific issues, such as safeguards relating to solar energy supply chains and Gender Based Violence. In both these cases, we have secured commitments from the Bank to produce more guidance and training to ensure that its projects thoroughly address environmental and social risks.

Recommendation 5

Pressure to lend and financial system strengthening: The UK should strengthen key country partnerships with IDA to bolster public financial management and anti-corruption programmes.

Response: Accept

The UK Government has a zero-tolerance approach to fraud and has long advocated for transparent, accountable public finance systems, and accountable management of fraud and corruption risks by the World Bank. We agree that it is critical that IDA continues to build on its strong track record, by supporting client countries to build their capacity to manage public finances and tackle corruption. Extending this was a key priority for the UK during the IDA20 replenishment, where we secured commitments from the World Bank on domestic resource mobilisation and to undertake fiscal incidence analysis in IDA countries.

The FCDO will monitor these IDA20 commitments closely and continue to collaborate closely with IDA on tax and public financial management capacity building, including through our bilateral programmes and in our country dialogue. This extensive partnership includes:

• collaboration to address the fiscal needs of countries experiencing shocks and crises through disaster risk financing and insurance tools, to provide more cost-effective, rapid, and reliable funds during emergencies
• funding the Bank’s Global Tax Programme which strengthens tax systems in over 70 countries, of which 61% are IDA countries, by facilitating the design and implementation of evidence-based tax reforms
• supporting the Global Tax Programme’s Fiscal Policy Pillar, which assisted governments to mitigate the social and economic impact of the COVID-19 pandemic