THEWORLDBANKANNUALREPORT2006 OPERATIONALSUMMARY| FISCAL 2006 IBRD MILLONS OF DOLLARS FY06 FY05 FY04 FY03 FY02 Commitments 14,135 13,611 11,045 11,231 11,452 Of which development policy lending 4,906 4,264 4,453 4,187 7,384 Number of projects 112 118 87 99 96 Of which development policy lending 21 23 18 21 21 Gross disbursements 11,833 9,722 10,109 11,921 11,256 Of which development policy lending 5,406 3,605 4,348 5,484 4,673 Principal repayments (including prepayments) 13,600 14,809 18,479 19,877 12,025 Net disbursements (1,767) (5,087) (8,370) (7,956) (769) Loans outstanding 103,004 104,401 109,610 116,240 121,589 Undisbursed loans 34,938 33,744 32,128 33,031 36,353 Operating incomea 1,740 1,320 1,696 3,021 1,924 Usable capital and reserves 33,339 32,072 31,332 30,027 26,901 Equity-to-loans ratio 33% 31% 29% 27% 23% a. Reported in IBRD's financial statements as net income before Board of Governors­approved transfers and net unrealized (losses) gains on nontrading derivative instruments, as required by Statement of Financial Accounting Standard No. 133. IDA MILLONS OF DOLLARS FY06 FY05 FY04 FY03 FY02 Commitments 9,506 8,696 9,035 7,282 8,068 Of which development policy lending 2,425 2,301 1,698 1,831 2,443 Number of projects 167 160 158 141 133 Of which development policy lending 30 32 23 24 23 Gross disbursements 8,910 8,950 6,936 7,019 6,612 Of which development policy lending 2,425 2,666 1,685 2,795 2,172 Principal repayments 1,680 1,620 1,398 1,369 1,063 Net disbursements 7,230 7,330 5,538 5,651 5,549 Credits outstanding 127,028 120,907 115,743 106,877 96,372 Undisbursed credits 22,026 22,330 23,998 22,429 22,510 Undisbursed grants 3,630 3,021 2,358 1,316 148 Development grant expenses 1,939 2,035 1,697 1,016 154 LETTEROFTRANSMITTAL ThisAnnualReport,whichcoverstheperiodfromJuly1,2005, BoardofExecutiveDirectors,hassubmittedthisreport, toJune30,2006,hasbeenpreparedbytheExecutiveDirectors togetherwiththeaccompanyingadministrativebudgetsand ofboththeInternationalBankforReconstructionandDevelop- auditedfinancialstatements,totheBoardofGovernors. ment(IBRD)andtheInternationalDevelopmentAssociation Annual reports for the International Finance Corporation (IDA)--collectivelyknownastheWorldBank--inaccordance (IFC), the Multilateral Investment Guarantee Agency (MIGA), withtherespectivebylawsofthetwoinstitutions.Paul and the International Centre for Settlement of Investment Wolfowitz,PresidentoftheIBRDandIDA,andChairmanofthe Disputes (ICSID) are published separately. THE WORLD BANK ANNUAL REPORT 2006 CONTENTS CD-ROM Content Message from the President of the World Bank Organizational Information and Chairman of the Board of Executive Directors 2 Income by Region The Board of Executive Directors 4 New Operations Approved The World Bank Group 8 Lending Data 1 Addressing Worldwide Poverty 11 Financial Statements 2 Regional Perspectives 27 Map of World Bank Regions, Country Offices, and Borrower Eligibility 28 Africa 30 East Asia and Pacific 34 South Asia 38 Europe and Central Asia 42 Latin America and the Caribbean 46 Middle East and North Africa 50 3 Summary of Fiscal Year Activities 54 Note: The complete Financial Statements, including Management's Discussion and Analysis, audited financial statements of the International Bank for Reconstruction and Development, and audited financial statements of the International Development Association, are published on the CD-ROM enclosed with this report. This Annual Report is also available on the Internet at www.worldbank.org. All dollar amounts used in this Annual Report are current U.S. dollars unless otherwise specified. Percentages in figures may not add to 100 due to rounding. THE WORLD BANK ANNUAL REPORT 2006 1 MESSAGE FROM THE PRESIDENT OF THE WORLD BANK AND CHAIRMAN OF THE BOARD OF EXECUTIVE DIRECTORS This Annual Report covers a year that saw a extreme poverty in Sub-Saharan Africa nearly doubled from revitalized global commitment to fighting poverty. 164 million to 303 million--almost half the total population. The 2005 "Year of Development" was an opportunity for By 2015, the number of poor is projected to rise still further to stocktaking five years after 189 UN Member States agreed to 336 million. a set of specific targets for reducing poverty, hunger, disease, But there is reason for optimism. Since 1995, 15 non­oil gender inequality, illiteracy, and environmental degradation-- producing African countries--representing 35 percent of the Millennium Development Goals. Africa's population--had growth rates of 4 percent or better, The G-8 Summit in Gleneagles, UK, in July 2005 saw with the median growth rate of 15 countries reaching significant commitments by donors to double aid and cancel 5.3 percent. Enrollment rates in primary education shot up the debts of the poorest countries to multilateral organiza- from 73 percent in 1990 to 93 percent in 2004. Improvements tions in order to accelerate progress toward these goals. G-8 in governance--public financial management, administrative, leaders called on the World Bank, specifically, to help ensure and transparency reforms in a number of countries--also results in Africa on poverty reduction and to create a new promise to bring hope and opportunity to the people of Africa. framework for mobilizing investment in clean energy and Wenowknowthataidwillnotdeliversustainableresultsin development. theabsenceofstronggovernance.Goodgovernanceisessen- At the Annual Meetings last September, this G-8 initiative tiallythecombinationoftransparentandaccountableinstitu- became what Development Committee Chairman Trevor tions,strongskillsandcompetence,andafundamental Manuel called "a G-184 initiative." In March of 2006, the willingnesstodotherightthing--thethingsthatenablea Bank's Governors agreed to a financing package for the governmenttodeliverservicestoitspeopleefficiently.Overthe Multilateral Debt Relief Initiative (MDRI), cancelling $37 lastyear,theBanksteppedupgovernanceandanticorruption billion in IDA debt of some of the world's poorest countries effortsalongthreedifferentfronts:atthecountrylevel;mini- over 40 years. This is in addition to some $17 billion of debt mizingtheriskofcorruptioninWorldBank­fundedprojects; relief already committed by IDA under the Enhanced Heavily andexpandingglobalpartnershipswithgroupsthathavea Indebted Poor Countries (HIPC) Initiative. stakeinimprovinggovernance--includingtheprivatesector. In September, an Africa Action Plan was presented to the Good governance is also critical for the investment that Board of Directors of the World Bank, setting specific targets creates jobs and thus opportunities for poor people to escape on everything from closing the infrastructure gap and rolling poverty. Here too, important progress is being made. back malaria to cutting through regulations that stifle According to the World Bank Group's 2006 Doing Business business. Africa continues to present a serious development report, 10 African countries introduced reforms to make it challenge. Despite global growth and declining poverty rates, easier to do business in 2004. More importantly, the Doing between 1981 and 2002, the number of people living in Business index itself has become a catalyst for reform in 2 THE WORLD BANK ANNUAL REPORT 2006 more than 20 countries, contributing to policy debates and energy services, we needed to reverse that trend, and we are. legislative reform. In doing so, the World Bank will take the lead in developing During fiscal 2006, total IBRD lending reached $14.1 responsible and sustainable infrastructure--infrastructure billion. We provided $9.5 billion in IDA credit and grants, of that promotes human development. which half--or $4.8 billion--went to Africa. IDA currently Over the last year, I have had the privilege of visiting five represents 13 percent of all external aid to Africa. IFC marked continents and talking with policy makers, entrepreneurs, civil its 50th anniversary with a record year of commitments society leaders, farmers, and schoolchildren in almost 30 totaling $6.7 billion. And guarantees provided by MIGA countries. These exchanges have convinced me that while we increased to $1.3 billion, of which $180 million went to face a daunting challenge to eradicate poverty, we also face projects in Africa. an unprecedented opportunity to make a difference. Over the While Sub-Saharan Africa is the most important priority for last 25 years, the number of people worldwide living on less the World Bank--it is not the only priority. Middle-income than a dollar a day fell by half a billion. If current trends countries are home to 25 percent of the world's poor people: continue, by the year 2015, another 400 million people, it is more people live in extreme poverty in Brazil, China, and India estimated, will escape poverty. Those numbers demonstrate combined than in all of Sub-Saharan Africa. And, looking that reducing poverty is not just a hope. It can become a ahead, the Bank will continue to play a large role in the reality with partnership, vision, good leadership, and invest- provision of global public goods, whether addressing the ment from inside and outside developing countries. challenge of avian flu and other diseases or helping develop- ing countries expand access to clean energy. As the fiscal year came to a close, I announced structural changes designed to make the organization more effective: the former Environmentally and Socially Sustainable Development and Infrastructure networks have become a single network called "Sustainable Development"; and the Financial Sector and Private Sector Development networks have been consolidated. The integration of environmental and infrastructure Paul Wolfowitz projects represents an important outcome of lessons learned over the last decade. During the 1990s the World Bank significantly reduced infrastructure investments. But with 1.6 billion people in the world without access to even basic THE WORLD BANK ANNUAL REPORT 2006 3 THE BOARD OF EXECUTIVE DIRECTORS The Executive Directors are responsible for the conduct of the (See www.worldbank.org/boards and www.worldbank World Bank's general operations, performing duties under .org/ieg for more information.) powers delegated by the Board of Governors. As provided in In fiscal 2006, the Board approved measures to improve its the Articles of Agreement, 5 of the 24 Executive Directors are effectiveness and ensure earlier Board input into the Bank's appointed by the member countries having the largest decision making. Key measures include the introduction of a number of shares; the rest are elected by the other member quarterly strategic review of the Board's work program, a countries, which form constituencies in an election process scheduling process, and a tool to track policy issues. Steps to conducted every two years. improve Board efficiency include changes to and clarification Executive Directors consider and decide on IBRD loan and of procedures and guidelines for conducting meetings and for guarantee proposals and IDA credit, grant, and guarantee preparing and submitting documents for consideration. These proposals made by the President. Directors exercise an measures are at different stages of implementation. The important role in shaping Bank policy and its evolution. In this result has been an increased focus on outcomes and greater capacity, they represent the evolving perspectives of member selectivity in issues discussed by Board committees. countries on the World Bank Group and its operations. The Additional steps being taken include developing a handbook Executive Directors are responsible for presenting to the on Board rules and procedures, defining a sanctions frame- Board of Governors, at the Annual Meetings, audited work for violations of rules and procedures, and establishing accounts, an administrative budget, and an annual report (this a time frame for reviewing the implementation status of report) on the Bank's operations and policies as well as other recommendations. matters that, in their judgment, require submission to the The Board works closely with the International Monetary Board of Governors. Fund (IMF) through the Bank-Fund Development Committee. The Board of Executive Directors (the Board) meets Directors play an active role in preparing agendas and issues regularly at Bank headquarters in Washington, DC. papers for the Development Committee's semiannual meet- Directors serve on one or more standing committees: Audit, ings. Following the 2006 Spring Meetings, the Development Budget, Development Effectiveness, Governance and Committee highlighted the need to promote good governance Administrative Matters, and Personnel. With the commit- (including fighting corruption) and mutual accountability. tees' help, the Board discharges its oversight responsibili- In fiscal 2006, the Board considered papers and reports on ties through in-depth examinations of policies and aid effectiveness, progress on the Doha Development Round practices. Committees are not empowered to make deci- of trade talks, the Bank's Africa Action Plan, implementation sions for the entire Board. The Independent Evaluation issues surrounding debt relief and implications for IDA, and Group, formerly the Operations Evaluation Department, implementation issues surrounding the status of the Heavily provides independent assessments to the Board on the Indebted Poor Countries (HIPC) Initiative. The Board also relevance, sustainability, efficiency, and effectiveness of noted the creation of the External Review Committee, which is operations. The group is directly accountable to the Board. tasked with reviewing Bank-Fund collaboration. 4 THE WORLD BANK ANNUAL REPORT 2006 From left to right: (standing) Gino Alzetta, Zou Jiayi, Marcel Massé, Paulo F. Gomes, Jakub Karnowski, Jaime Quijandria, Mulu Ketsela, Dhanendra Kumar,Yoshio Okubo, Sid Ahmed Dib, Pierre Duquesne, Joong-Kyung Choi, Jennifer Dorn, Herwidayatmo, Mahdy Ismail Aljazzaf, Abdulrahman M. Almofadhi, Biagio Bossone; (seated) Otaviano Canuto, Thorsteinn Ingolfsson, Eckhard Deutscher, Alexey G.Kvasov, Jan Willem van der Kaaij, Tom Scholar. Not pictured: Luis Marti. Toassessprojectimplementationfirsthand,Directors and fragile states; and strengthening partnerships with traveledtoGrenada,Guatemala,andPeru(November2005); middle-income countries. theCentralAfricanRepublic,Gabon,andTheGambia(March 2006);andtheRussianFederation(May2006).Theymetwitha Poverty Reduction widerangeofstakeholders,includingprojectmanagers, The Board continued to monitor implementation of the Bank's beneficiaries,governmentofficials,representativesofcivil poverty reduction mandate and its contributions toward societyorganizationsandtheprivatesector,otherdevelopment attaining the Millennium Development Goals. The Board partners,financialinstitutions,andresidentmissionBankstaff reviewed 10 Poverty Reduction Strategy (PRS) Papers and 20 members. PRS Progress Reports in fiscal 2006, and it identified areas for further refinement. The Board also discussed several STRATEGIC ISSUES other papers designed to strengthen the Bank's role in The major areas of Board emphasis during fiscal 2006 are poverty reduction, including the efficacy of PRSs and the highlighted below. effectiveness of poverty reduction strategy credits, a Bank lending instrument that supports poverty reduction objectives. Strategic Framework The Board's work continued to follow closely the twin pillars Debt Relief of the Bank's strategic framework: supporting the creation of In March 2006, the Board approved the Multilateral Debt Relief a favorable investment climate and empowering poor people. Initiative (MDRI), which provides debt relief to countries that The range of interventions include support for sound gover- reach their completion points under the HIPC Initiative. The nance, sustainable development, inclusive delivery of social MDRI went into effect on July 1, 2006. The Board also services, improved infrastructure, private sector development, discussed several joint Bank-Fund papers in support of debt and job creation. The Executive Directors reaffirmed the need relief, including one on the status of the implementation of the for selectivity in the Bank's work and called for greater HIPC Initiative and another addressing IDA's implementation of collaboration with development partners. The Executive the MDRI, including the so-called free-rider problem. In fiscal Directors endorsed the Africa Action Plan and its 25 specific 2006, the Board also reviewed one HIPC completion point initiatives to be undertaken by the Bank's Africa region during document. (See www.worldbank.org/debtand chapter 1.) the implementation period for the 14th Replenishment of IDA. Other issues discussed by the Board focused on progress in Country Programs harmonizing operational policies, procedures, and practices Country assistance strategies (CASs), country partnership among donors; progress in implementing the Paris strategies, and the Bank's policies with respect to low- Declaration, which outlines enhanced aid effectiveness income countries under stress, postconflict countries, and through mechanisms aimed at a stronger focus on results; middle-income countries continued to guide the Bank meeting the needs of low-income countries, including HIPCs Group's work. During the year, the Board reviewed 31 CASs THE WORLD BANK ANNUAL REPORT 2006 5 and other CAS products. Executive Directors commended the INSPECTION PANEL greater emphasis on poverty reduction as the overarching TheInspectionPanelreceived4requestsforinspection goal of the results agenda detailed in these strategy docu- involvingBankprojectsinHonduras(LandManagement ments. To this end, Executive Directors welcomed the Project),Nigeria(WestAfricanGasPipelineProject),Romania mainstreaming of the CAS completion report reviews, which (MineClosureandSocialProtection),andtheDemocratic for the first time provided systematic evaluation of CAS RepublicofCongo(TransitionalSupportforEconomicRecovery results. The Board supported the Bank's efforts to move CreditandEmergencyEconomicandSocialReunification toward assistance strategies developed by IBRD, IDA, IFC, SupportProject).Sincethepanel'sestablishment,40requests and MIGA. It also supported increased partnerships with forinspectionhavebeenreceived:13fromAfrica,12fromLatin other development partners. America,10fromSouthAsia,4fromEastAsiaandPacific,and 1fromEasternEurope.Ofthe40requests,35wereregistered OVERSIGHT AND FIDUCIARY RESPONSIBILITY andthepanelhasrecommendedinvestigationsin20cases,6 The Board exercises oversight and fiduciary responsibilities, undertherulesthatappliedbeforetheApril1999clarifications in part through its Audit Committee. The Audit Committee has totheresolutionthatestablishedthepanel,and14sincethose a mandate to assist the Board in overseeing and making clarificationswereadopted.AsofJune2006,thepanelwas decisions regarding the World Bank Group's financial condi- conducting2investigations. tion, its risk management and assessment processes, the The Inspection Panel provides a vehicle for private citizens, adequacy of its governance and controls, and its reporting and especially poor people, to bring claims to the World Bank's accounting policies and procedures. Board of Executive Directors, who then decide, on the recom- mendation of the panel, whether an investigation will take ADMINISTRATIVE BUDGET place. The process for addressing claims has empowered and The total administrative budget for fiscal 2006, reviewed by given voice to people who may have been affected adversely the Budget Committee and approved by the Executive by Bank-financed projects. Directors, was $2,102.8 million, net of reimbursements, Requests for inspection, management responses, panel including $171.9 million for the Development Grant Facility. recommendations, panel investigation reports, and manage- The net administrative budget of $1,543.3 million repre- ment recommendations for projects reviewed this fiscal year sented a zero percent real increase over the fiscal 2005 can be found at www.worldbank.org/inspectionpanel. budget (a 3 percent nominal increase). In June 2006, the Executive Directors approved a total administrative budget, net of reimbursements, of $2,118.6 million for fiscal 2007. 6 THE WORLD BANK ANNUAL REPORT 2006 EXECUTIVE DIRECTORS, ALTERNATES, AND COMMITTEE MEMBERSHIP | JUNE 30, 2006 EXECUTIVE DIRECTOR ALTERNATE CASTING VOTES OF APPOINTED (vacant) Jennifer Dorn United States (vacant) Toshio Oya Japan Eckhard Deutschere (C) Walter Hermannh Germany Tom Scholarb (VC) Caroline Sergeant United Kingdom Pierre Duquesnea (C) Alexis Kohler France ELECTED Gino Alzettaa, d (VC) Melih Nemli Austria, Belarus,* Belgium, Czech Republic, Hungary, Kazakhstan, Luxembourg, Slovak (Belgium) (Turkey) Republic, Slovenia, Turkey Luis Martia, d Jorge Familiarh Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain, Venezuela (Spain) (Mexico) (República Bolivariana de)* Jan Willem van der Kaaijc, e Anca Ciobanuh Armenia, Bosnia and Herzegovina, Bulgaria,* Croatia, Cyprus, Georgia, Israel, Macedonia (Netherlands) (Romania) (former Yugoslav Republic of), Moldova, Netherlands, Romania,* Ukraine Marcel Masséd, e Gobind Gangah Antigua and Barbuda,* The Bahamas,* Barbados, Belize, Canada, Dominica, Grenada, (Canada) (Guyana) Guyana, Ireland, Jamaica,* St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines Otaviano Canutob (C), i Jeremias N. Paul, Jr. Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Philippines, Suriname,* (Brazil) (Philippines) Trinidad and Tobago Biagio Bossonea, b Nuno Mota Pinto Albania, Greece, Italy, Malta,* Portugal, San Marino,* Timor-Leste (Italy) (Portugal) Joong-Kyung Choib, e Terry O'Brienh (C) Australia, Cambodia, Kiribati, Korea (Republic of), Marshall Islands, Micronesia (Republic of Korea) (Australia) (Federated States of), Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands, Vanuatu Mathias Sinamenyec, d Mulu Ketsela Angola, Botswana, Burundi, Eritrea, Ethiopia, The Gambia, Kenya, Lesotho, Liberia, (Burundi) (Ethiopia) Malawi, Mozambique, Namibia,* Nigeria, Seychelles,* Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe Dhanendra Kumarc, d Zakir Ahmed Khanh Bangladesh, Bhutan, India, Sri Lanka (India) (Bangladesh) Thorsteinn Ingolfssonb, e Svein Aassh Denmark, Estonia,* Finland, Iceland, Latvia, Lithuania,* Norway, Sweden (Iceland) (Norway) Sid Ahmed Dibc (VC), e Shuja Shah Afghanistan, Algeria, Ghana, Iran (Islamic Republic of), Iraq, Morocco, Pakistan, Tunisia (Algeria) (Pakistan) Pietro Veglioc (C), d Jakub Karnowski Azerbaijan, Kyrgyz Republic, Poland, Serbia and Montenegro, Switzerland, Tajikistan, (Switzerland) (Poland) Turkmenistan,* Uzbekistan Mahdy Ismail Aljazzaf Mohamed Kamel Amr Bahrain,* Egypt (Arab Republic of), Jordan, Kuwait, Lebanon, Libya, Maldives, Oman, (Kuwait) (Arab Republic of Egypt) Qatar,* Syrian Arab Republic, United Arab Emirates, Yemen (Republic of) Zou Jiayia, b Yang Jinlinh China (China) (China) Abdulrahman M. Almofadhib Abdulhamid Alkhalifa Saudi Arabia (Saudi Arabia) (Saudi Arabia) Alexey G. Kvasovd (C) Eugene Miagkovh Russian Federation (Russian Federation) (Russian Federation) Herwidayatmoa, e Nursiah Arshadh Brunei Darussalam,* Fiji, Indonesia, Lao People's Democratic Republic, Malaysia, (Indonesia) (Malaysia) Myanmar, Nepal, Singapore, Thailand, Tonga, Vietnam Jaime Quijandriac, d Alieto Guadagni Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay* (Peru) (Argentina) Paulo F. Gomesb, e (VC), f Louis Philippe Ong Sengh Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, (Guinea-Bissau) (Mauritius) Congo (Democratic Republic of), Congo (Republic of), Côte d'Ivoire, Djibouti, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, São Tomé and Principe, Senegal, Togo *Member of IBRD only. Committees a. Audit Committee f. Pension Benefits and Administration Committee C = Chairman b. Budget Committee g. Pension Finance VC = Vice Chairman c. Committee on Development Effectiveness (CODE) h. Code Subcommittee (formed 1/12/05) d. Personnel Committee i. Ethics Committee e. Committee on Governance and Executive Directors' Administrative Matters THE WORLD BANK ANNUAL REPORT 2006 7 THE WORLD BANK GROUP The World Bank Group comprises five closely associated institutions that collaborate to support development projects worldwide. Examples of Bank Group cooperation include joint country assistance strategies; invest- ment promotion initiatives; the Foreign Investment Advisory Service; guarantee programs for major infrastruc- ture projects; joint programs for developing micro, small, and medium enterprises; and awareness and prevention of HIV/AIDS (human immunodeficiency virus/acquired immune deficiency syndrome). THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT IBRD,theoldestoftheWorldBankGroup theyearshasallowedittofund Established 1944 | 184 Members institutions,aimstoreducepovertyin developmentalactivitiesandensureits Cumulative lending: $420.2 billion* middle-incomeandcreditworthypoorer financialstrength,enablingittoborrowin Fiscal 2006 lending: $14.1 billion countriesbypromotingsustainable capitalmarketsatlowcostandofferclients for 112 new operations in 33 countries developmentthroughloans,guarantees, goodborrowingterms.IBRD's24-member riskmanagementproducts,and Boardismadeupof5appointedand19 *Includes guarantees from fiscal 2005. (nonlending)analyticandadvisoryservices. electedExecutiveDirectorswhorepresent TheincomethatIBRDhasgeneratedover theinstitution's184membercountries. IBRD KEY FINANCIAL INDICATORS | FISCAL 2002­2006 MILLIONS OF DOLLARS 2002 2003 2004 2005 2006 Operating Incomea 1,924 3,021 1,696 1,320 1,740 Loans outstanding 121,589 116,240 109,610 104,401 103,004 Total assets 227,454 230,062 228,910 222,008 212,326 Total equity 32,313 37,918 35,463 38,588 36,474 a. Reported in IBRD's financial statements as net income before Board of Governors­approved transfers and net unrealized (losses) gains on nontrading derivative instruments, as required by Statement of Financial Accounting Standard No. 133. THE INTERNATIONAL DEVELOPMENT ASSOCIATION IDA provides highly concessional help support country-led poverty financing to the world's 81 poorest reduction strategies in key policy areas, Established 1960 | 165 Members countries. IDA's interest-free credits and including raising productivity, providing Cumulative commitments: $170 billion* grants, financed by contributions to IDA accountable governance, building a Fiscal 2006 commitments: $9.5 billion for 167 new operations in 59 countries from donor countries and IBRD's net healthy investment climate, and income transfers, are vital because these improving access to basic services, *Includes guarantees from fiscal 2005. countries have little or no capacity to including education and health care. (See borrow on market terms. IDA's resources www.worldbank.org/ida.) IDA KEY FINANCIAL INDICATORS | FISCAL 2002­2006 MILLIONS OF DOLLARS 2002 2003 2004 2005 2006 Operating income (loss) 692 108 (1,684) (986) (2,043) Development credits outstanding 96,372 106,877 115,743 120,907 127,028 Total sources of development resources 109,495 119,454 127,930 130,378 102,871 8 THE WORLD BANK ANNUAL REPORT 2006 THE INTERNATIONAL FINANCE CORPORATION IFCistheprivatesectorinvestmententityof regionsandcountriesthathavelimited Established 1956 | 178 Members theWorldBankGroup.Itinvestsin accesstocapital.Itprovidesfinancingin Committed portfolio: $21.6 billion sustainableprivateenterprisesin marketsdeemedtooriskybycommercial (includes $5.1 billion in syndicated loans) developingandtransitioncountrieswithout investorsintheabsenceofIFCparticipation Fiscal 2006 commitments: $6.7 billion acceptinggovernmentguarantees,thereby andaddsvaluetotheprojectsitfinances in 284 projects in 66 countries helpingtoreducepovertyandimprove throughitscorporategovernance, people'slives.Itprovidesequity,long-term environmental,andsocialexpertise.IFC loans,structuredfinanceandrisk partnerswithIBRD,IDA,MIGA,andICSID managementproducts,andtechnical onprivatesectorinitiatives.Additional assistanceandadvisoryservicestoits informationcanbefoundinIFC'sannual clients.IFCseekstoreachbusinessesin report.(Seewww.ifc.org.) IFC KEY FINANCIAL INDICATORS | FISCAL 2002­2006 MILLIONS OF DOLLARS (unless otherwise indicated) 2002 2003 2004 2005 2006 Operating incomea 161 528 982 1,953 1,409 Net income 215 487 993 2,015 1,278 Liquid assets, net of associated derivatives 14,532 12,952 13,055 13,325 12,730 Loan and equity investments, net 7,963 9,377 10,279 11,489 12,731 Borrowings withdrawn and outstanding 16,581 17,315 16,254 15,359 14,967 Total capital 6,304 6,789 7,782 9,798 11,076 Return on average assets (%) 0.6 1.8 3.1 5.4 3.6 Return on average net worth (%) 2.7 8.2 13.7 22.6 13.7 Cash and liquid investments as a percentage of next 3 years' estimated net cash requirements (%) 109 107 116 142 112 Debt-to-equity ratio 2.8:1 2.6:1 2.3:1 1.8:1 1.5:1 Capital adequacy ratio (%) 49 45 48 50 54 Total reserve against losses to total disbursed portfolio (%) 21.9 18.2 14.0 9.9 8.3 a. Effective 2005, income after expenditures for technical assistance and advisory services and for performance-based grants. SME DEVELOPMENT IN AFRICA: IDA-IFC COOPERATION Development of small and medium enterprises (SMEs) in Africa innovative vehicles to supply risk capital. Structured financial is one of the World Bank Group's strategic goals: it is seen as instruments, such as partial credit guarantees to help local one of the best hopes for building economies and reducing banks refinance their lending to SMEs, are also used. The IDA- poverty. But SMEs are often limited in their access to financial IFC program is being piloted in 10 African countries: Burkina resources. To bridge this gap, IFC and IDA are partnering to Faso, Ghana, Kenya, Madagascar, Mali, Mozambique, Nigeria, improve access to financing by strengthening the local Rwanda, Tanzania, and Uganda. Interventions include technical environment for financial markets, enhancing the ability of local assistance, capacity building, output-based grants, and financial institutions to lend profitably to SMEs, and developing regulatory assistance. THE WORLD BANK ANNUAL REPORT 2006 9 THE MULTILATERAL INVESTMENT GUARANTEE AGENCY MIGA provides noncommercial guarantees disturbance. MIGA also provides advisory (insurance) for foreign direct investment in services to help countries attract and Established 1988 | 167 Members developing countries. It addresses retain foreign investment, mediates Cumulative guarantees issued: $16 billion* concerns about investment environments investment disputes to keep current Fiscal 2006 guarantees issued: $1.3 billion and perceptions of risk, which often inhibit investments intact and to remove possible *Amounts include funds leveraged through the investment, by providing political risk obstacles to future investment, and Cooperative Underwriting Program. insurance. MIGA's guarantees offer disseminates information on investment investors protection against opportunities to the international business noncommercial risks such as community. Additional information can be expropriation, currency inconvertibility, found in MIGA's annual report. (See www breach of contract, war, and civil .miga.org.) MIGA KEY FINANCIAL INDICATORS | FISCAL 2002­2006 MILLIONS OF DOLLARS 2002 2003 2004 2005 2006 Operating income 48 38 26 24 17 Operating capitala 702 766 811 830 863 Operating income/operating capital (%) 7 5 3 3 2 Net exposure 3,202 3,204 3,259 3,138 3,310 Operating capital/net exposure (%) 22 24 25 26 26 Five largest exposuresb 1,006 912 923 834 827 Five largest exposures/net exposure (%) 31 29 28 27 25 Net exposure in IDA-eligible countries 1,113 1,255 1,139 1,341 1,435 Net exposure in IDA-eligible countries/net exposure (%) 35 39 35 43 43 a. Shareholders' equity plus insurance liability and prudential reserves. b. Aggregate of five largest country net exposures. THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES ICSID, founded in 1966, was designed to foreign investors. Many international facilitate the settlement of investment agreements concerning investment refer Established 1966 | 143 Members disputes between foreign investors and to ICSID's arbitration facilities. ICSID also Total cases registered: 210 host states. It encourages foreign conducts research and publishing Fiscal 2006 cases registered: 26 investment by providing neutral activities in the areas of arbitration law international facilities for conciliation and foreign investment law. Additional and arbitration of investment disputes, information can be found in ICSID's thereby helping foster an atmosphere of annual report. (See www.worldbank mutual confidence between states and .org/icsid.) WORLD BANK GROUP AT WORK An investment project in which the Bank, IFC, and MIGA all could generate up to 750 jobs. MIGA issued $305 million in played a role during the past year was the Kupol Mining Project guarantees to cover equity investments, which, according to in the Russian Federation. The Bank's 2002­06 country assis- project lenders, made their financing possible. In line with tance strategy for Russia laid the foundation for understanding the Bank's policy on extractive industries, this involvement the need for economic development and growth in this remote will bring expertise and guidance to help ensure that the region of northeastern Russia. IFC provided a $35 million loan to mine's social and environmental performance meets the Bema Gold Corporation to open and operate a gold mine that international standards. 10 THE WORLD BANK ANNUAL REPORT 2006 1 ADDRESSINGWORLDWIDEPOVERTY REDUCINGPOVERTYANDINEQUALITY loans through IDA. To better meet the needs of countries, The past year saw both progress and continued challenges in especially those eligible for both IBRD and IDA client as- the global fight against poverty and inequality. For the world's sistance, the Bank is discussing ways to build greater fle- poorest countries, advances against poverty are measured by xibility into its business model. Numerous subregional progress in achieving the eight Millennium Development and continentwide initiatives have been launched in recent Goals (MDGs), which provide specific objectives against which years to address development challenges that cross to measure results in obtaining basic services for citizens, en- borders. In Africa, for example, many countries face simi- hancing environmental sustainability, and forming global lar problems that are rooted in the region's extreme po- partnerships for development. The MDGs also measure pro- verty and its history of weak institutions and poor gover- gress in middle-income countries as governments seek to nance. Other challenges are worldwide in scope: from expand existing but often unequal access to services and climate change, to avian flu, to the stability of the inter- employment. For countries of all economic levels, the quality national financial system. of governance and the investment climate affect citizen It is unlikely that such cross-border challenges will be re- well-being. solved through individual country efforts alone. Collective The Bank works with countries to prioritize their needs, action is needed. The Bank works with the international com- articulate development strategies, and select financial munity to confront these global issues by supporting a broad instruments appropriate to fund those needs. Middle- range of initiatives designed to enhance the supply of global income countries borrow through IBRD. The world's poorest and regional public goods, including programs and funds countries receive grants and interest-free, concessional targeted to combating global health threats, supporting the FISCAL 2006 HIGHLIGHTS 2006TopicalHighlights: Debt relief for the poorest countries (see page NonlendingActivities:307 technical assistance activities; 601 economic 15); targeting development in Africa (see page 16); addressing govern- and sector work products. ance and anticorruption issues globally (see page 13); improving partner- ships with the international community (see page 19); quick responses to IEG Evaluations of Activities: 16 major evaluations by the Indepen- potential avian flu outbreaks (see page 17); and disaster relief (see dent Evaluation Group reviewing the Bank's performance on a range page 14). of activities including country assistance, debt relief, development effectiveness, middle-income countries, postdisaster assistance, IBRDLending: 112 projects totaling $14.1 billion. Top three sectors: Law and trade. and Justice and Public Administration; Transportation; Energy and Mining. Publications: More than 150 publications, including Global Development IDAConcessionalLending: 167 projects totaling $9.5 billion. Top three Finance 2006, Global Monitoring Report 2006, World Development Indica- sectors: Law and Justice and Public Administration; Transportation; tors 2006, and World Development Report 2006: Equity and Development. Health and Other Social Services. (See www.worldbank.org/publications.) 12 THE WORLD BANK ANNUAL REPORT 2006 environmental commons, promoting trade and economic in- within the 2005 Africa Action Plan, developing a framework tegration, and sharing development knowledge. for middle-income countries, supporting agriculture in the Global poverty challenges are strongly linked to economic poorest countries, cooperating with other international orga- and social inequality and to disparities in resource allocation. nizations to combat avian flu, searching for new approaches The Bank's World Development Report 2006: Equity and De- to deal with climate change, and strengthening partnerships velopment shows how policies that promote economic growth to put in place a monitoring plan for the March 2005 Paris and human development can interact with policies aimed at Declaration on Aid Effectiveness. The Bank also responded to increasing equity--including interventions to expand access to emergencies, including the October 2005 earthquake in health care, education, jobs, land, and markets--to move to- northern Pakistan and the May 2006 earthquake in Indonesia ward the long-term goal of reducing poverty. Although the (see box 1.1). Bank has undertaken research on the link between poverty and inequality for several years, the 2006 World Development StrengtheningGovernanceandAccountability Report underscores its importance for the Bank's agenda. Promoting good governance, including fighting corruption and strengthening mutual accountability, is essential to achieving ADDRESSINGEMERGINGDEVELOPMENTCHALLENGES the MDGs. The Global Monitoring Report 2006 on the MDGs While country-led poverty reduction and national development notes that corruption is a symptom of poor governance. The strategies continued to be important mechanisms for defining World Bank­International Monetary Fund Development Com- country priorities and aid strategies, several additional issues mittee discussed the report and agreed on the need for ef- of special note moved to the forefront of the Bank's activities forts to improve governance in all countries, to help build ef- during fiscal 2006. These diverse issues included improving fective states with strong national systems, and to collaborate governance and accountability, implementing a new Multilat- on implementing global initiatives for improving governance, eral Debt Relief Initiative, expanding initiatives undertaken increasing transparency, and building demand for good THE MILLENNIUM DEVELOPMENT GOALS 1.EradicateExtremePovertyandHunger 6.CombatHIV/AIDS,Malaria,andOtherDiseases Halve the proportion of people in extreme poverty, and the proportion of Halt and begin to reverse the spread of HIV/AIDS, the incidence of people who suffer from hunger, by 2015. malaria, and other major diseases by 2015. 2.AchieveUniversalPrimaryEducation 7.EnsureEnvironmentalSustainability Ensure by 2015 that all boys and girls complete a full course of primary Reverse the loss of environmental resources; by 2015, reduce by half the schooling. proportion of people without sustainable access to safe drinking water; and by 2020, improve significantly the lives of at least 100 million slum dwellers. 3.PromoteGenderEqualityandEmpowerWomen 8.DevelopaGlobalPartnershipforDevelopment Eliminate gender disparity in primary and secondary education, Develop further an open, rule-based, predictable, nondiscriminatory preferably by 2005, and at all levels by 2015. trading and financial system, and address the special needs of the least 4.ReduceChildMortality developed countries, landlocked countries, and small island states; deal Reduce by two-thirds the mortality rate among children under age five comprehensively with the debt problems of developing countries; develop by 2015. and implement strategies for decent and productive work for youth; provide access to affordable essential drugs; and make available the 5.ImproveMaternalHealth benefits of new technologies. (See www.developmentgoals.org and Reduce by three-quarters the maternal mortality ratio by 2015. www.un.org/millenniumgoals.) ADDRESSING WORLDWIDE POVERTY 13 governance at the country level in ways that strengthen own- measures, administrative and civil service reform, decentrali- ership. Building on work over the last decade, the committee zation, public financial management, tax policy, procurement, called on the Bank to lay out a broad strategy, to be discussed and legal and judicial reform. Support for civil society organiza- at the September 2006 Annual Meetings, for helping member tions and media outlets also helped strengthen the Bank's go- countries strengthen governance and deepen the fight against vernance agenda. In addition, the Bank's ongoing research into corruption. The strategy, which should lead to clear guide- the causes of and remedies for corruption has produced useful lines for operations, calls for the Bank to work closely with diagnostic tools. These tools include a set of worldwide indica- the International Monetary Fund (IMF), other multilateral de- tors that assess six dimensions of governance in more than 200 velopment banks, and member countries to ensure a coher- countries. Other indicators gauge the effectiveness of govern- ent, fair, and effective approach. ment agencies and programs. Together, these indicators can The Bank lent $4.6 billion for governance and rule of law be used to formulate reforms. The Bank also partners with the programs in fiscal 2006. Programs included anticorruption IMF on the Bank-Fund Financial Sector Assessment Program BOX1.1 RECONSTRUCTION Three devastating natural disasters struck countries border- were also affected. Just two weeks after the tragedy, the Bank ing the Indian Ocean within a year: the December 2004 provided $470 million to support reconstruction and safeguard tsunami with its epicenter off the Indonesian coast, the ongoing reform and poverty reduction programs. In December, October 2005 earthquake in northern Pakistan, and the an additional $400 million was approved. In all, the Bank has May 2006 Yogyakarta earthquake in Indonesia. The Bank was pledged $1 billion for earthquake recovery, mostly in the form closely involved in damage and loss assessments following of IDA credits. Since 1984, Bank lending for natural disasters all three events and has been supporting reconstruction ef- has totaled more than $26 billion. A recent Independent Evalu- forts in affected countries. ation Group (IEG) evaluation, Hazards of Nature, Risks to De- velopment, points out that these events should be seen as risk In Indonesia, the country hardest hit by the tsunami, the Bank factors in development rather than interruptions to it. The eval- is the trustee of the Indonesia Multi-Donor Fund for Aceh and uation concluded that the Bank needs to factor natural disas- Nias, with grant pledges of $526 million from 15 donors. The ters into project and country program design and develop more Bank is supervising 6 of the fund's 12 projects, which provide effective financing mechanisms for emergency assistance. assistance for housing, roads, water supply, health, livelihood support, and capacity building in housing reconstruction as Besides its work in response to natural disasters, the Bank well as coastal management and project implementation. supported some 35 countries affected by violent conflict. Indonesia also received a $25 million grant from IBRD's sur- Such support targets the reintegration of ex-combatants into plus. An additional $39 million in IDA financing for recovery society, reconstruction of infrastructure, rebuilding institu- and peace building in Aceh was also allocated. For South tional capacity and governance, and establishing community- Asian countries affected by the tsunami, the Bank has com- driven development. Where regular Bank assistance is not mitted more than $835 million to reconstruction. possible, a Post-Conflict Fund provides flexible and innova- tive grants to countries (13 currently), in addition to regional The October 2005 earthquake killed some 73,000 people, pri- and global grants. The fund has made 166 grants totaling marily in northern Pakistan. Parts of India and Afghanistan $83 million since 1998. 14 THE WORLD BANK ANNUAL REPORT 2006 and the Anti-Money-Laundering/Combating the Financing of and is an extension of debt relief available under the en- Terrorism Program, two initiatives that strengthen the integrity hanced Heavily Indebted Poor Countries (HIPC) Initiative of financial systems and fight corruption. The Bank also partic- (see box 1.2). The MDRI should help eligible countries-- ipates in the Extractive Industries Transparency Initiative, a those that reach the completion point of the HIPC Initiative-- multi-stakeholder initiative designed to ensure that the reve- achieve the MDGs. nues from extractive industries contribute to sustainable The provision of IDA grants and debt relief through the development and poverty reduction. MDRI, however, may increase the risk of free riding, a term Within the institution, the Bank has a global hotline for used to refer to situations in which IDA's debt relief or grants reporting corruption. Reports are sent to the Bank's De- could potentially cross-subsidize lenders that offer noncon- partment of Institutional Integrity, which investigates alle- cessional loans to recipient countries. IDA grants and MDRI gations of fraud and corruption in Bank projects, as well as debt relief aim to improve prospects for long-term debt sus- allegations of staff misconduct. The department has hand- tainability in IDA countries, and such nonconcessional lending led more than 2,000 cases to date, resulting in the public could undermine that goal. IDA is therefore preparing an ap- sanction of more than 330 firms and individuals. When ap- proach to address the free-rider issue that calls for increased propriate, the department refers its investigative findings to creditor cooperation and borrower disincentives. the prosecutorial authorities of its member countries for Total debt relief under the MDRI is estimated at about further action. In the past year, the department expanded, $50 billion, including $37 billion from IDA alone, which is handling 426 cases. (See www.worldbank.org/corruption equivalent to more than a quarter of IDA's total resources. and www.worldbank.org/integrity.) Debt relief will be provided up front and irrevocably once a HIPC country becomes MDRI-eligible. In addition to their InitiatingMultilateralDebtRelief regular financial support to IDA, donor countries have made At their July 2005 summit in Gleneagles, the leaders of the commitments to preserve IDA's long-term financial capacity Group of Eight (G-8) nations proposed 100 percent cancella- and replace the forgone credit reflows of IDA over the 40- tion of debt owed to IDA, the IMF, and the African Develop- year repayment period of the cancelled credits. The Board ment Fund by some of the world's poorest countries, most of Executive Directors of IDA approved the MDRI on March of them in Africa and Latin America. The new debt relief 28, 2006; IDA's Board of Governors adopted the MDRI on plan, the Multilateral Debt Relief Initiative (MDRI), was en- April 21, 2006. IDA began implementing the MDRI at the dorsed by the Bank-Fund Development Committee at the start of fiscal 2007. (More information about the MDRI, in- September 2005 Annual Meetings. Relief under the plan is cluding a list of eligible countries, is available at www provided in support of government efforts to tackle poverty .worldbank.org/debt.) BOX1.2 EVALUATION: HEAVILY INDEBTED POOR COUNTRIES UPDATE The Independent Evaluation Group's fiscal 2006 report, Debt has been insufficient for debt sustainability. Improvements in Relief for the Poorest: An Evaluation of the HIPC Initiative, export diversification, fiscal management, the terms of new analyzes the Bank's efforts to address debt sustainability. The financing, and public debt management are also needed. Debt review found that the enhanced HIPC Initiative cut debt ratios relief is expected to help countries achieve the MDGs by freeing in half for 18 countries, but the ratios once again exceeded up resources that can be invested in economic growth and HIPC thresholds in 8 of these countries. Debt reduction alone human development. (See www.worldbank.org/hipc.) ADDRESSING WORLDWIDE POVERTY 15 ImplementingtheAfricaActionPlan its work to increase transparency in national budgeting and The Africa Action Plan underscores the importance of en- procurement, and Sierra Leone began, with the Bank's help, suring that any growth agenda benefit poor and marginal- to improve inclusiveness, transparency, and accountability in ized people. The plan contains 25 initiatives focused on local government systems. To boost export-led growth, the building capable governance structures; strengthening driv- Bank financed the construction of border crossing points be- ers of growth, including investments in the private sector, tween countries of the East African Community, and between infrastructure, and human development; and increasing the those countries and Rwanda; the Bank also supported cross- impact of partnerships among governments, donor coun- national rail concessions in Kenya and Uganda for a project tries, and development agencies. The plan makes specific leveraging private investment. Regional power sector projects commitments to investments in people and infrastructure suffered setbacks, however, with delays in launching electric- and to working more effectively with other donors that pro- ity modernization programs in the Democratic Republic of vide this support. Congo and Rwanda. The number of good African performers To spur investment in infrastructure, the Africa Catalytic as measured by the Bank's Country Policy and Institutional Growth Fund was launched in March 2006. The fund has the Assessment rose from 6 to 20 countries in 2006. (See www potential to leverage up to $1 billion annually for projects un- .worldbank.org/afr.) dertaken under the aegis of the Infrastructure Consortium for Africa, launched in 2005 by the African Development Bank, FinancingMiddle-IncomeCountryStrategies the African Union, the Economic Community of West African Hundreds of millions of the world's poor, defined as those States, the New Partnership for Africa's Development, the who live on less than $2 a day, live not in the world's poorest European Commission, the G-8, and the World Bank. countries but in middle-income countries. These countries Investments in human development are also under way. are eligible to borrow from IBRD, although the so-called The Democratic Republic of Congo, Eritrea, Niger, and "blend" countries are also eligible for IDA concessional lend- Zambia became the first countries to benefit from the ing. All have large unfinished social agendas, which include Bank's expanded Malaria Booster Program and scaled-up meeting and surpassing the MDGs. HIV/AIDS lending. For education, the Africa Action Plan Middle-income countries also play an increasingly impor- commits to increased support for free primary education in tant role in the provision of global public goods, such as clean 15 countries. Results have begun to emerge. In Ethiopia, energy, trade integration, environmental protection, interna- for example, the enrollment rate has jumped to 65 percent; tional financial stability, and fighting the spread of communi- this increase is attributed to growth in entrants to the first cable diseases. But most face constraints in mobilizing the grade. funds needed to invest in infrastructure, health, education, Honoring a promise to create regional centers of excel- and the reform of policies and institutions essential to im- lence and provide investments to achieve the gender equality proving the domestic investment climate. Not all middle- MDG (see page 24), the Bank facilitated a job creation and income countries are able to borrow on foreign markets or sector diversification project in Ghana. Nigeria received assis- access risk management instruments, and where these tance in its efforts to improve governance and repatriate mon- sources of financing are available, the maturities are often ies looted from the country's treasury. Kenya was assisted in short and interest rates high. 16 THE WORLD BANK ANNUAL REPORT 2006 In response to the needs of this diverse group of countries, human flu pandemic. That, in turn, could disrupt the global the Bank provides a flexible program of banking, finance, and economy by generating losses on the order of $1.25 trillion in knowledge services. The Bank recognizes that working col- a severe scenario, cause substantial loss of life, and increase laboratively with other multilateral development banks and poverty in developing countries. To minimize this possibility bilateral donors can expand the scale of involvement at the and to protect rural livelihoods from animal disease, response country level and maximize development impact. As a result, to potential outbreaks must be coordinated at national, re- the multilateral development banks are preparing a joint pol- gional, and international levels. Doing so requires substantial icy paper on blending in middle-income countries. (See www financial resources. The Bank is working closely with interna- .worldbank.org/middleincome.) tional technical agencies, multilateral agencies (notably, the Office of the United Nations Senior Influenza Coordinator), SupportingAgriculture donors, and client countries to coordinate activities. Agriculture remains the engine of growth in most of the In November 2005, the Bank, the Food and Agriculture Or- world's low-income countries. For that reason, agriculture ganization, the World Health Organization, and the World Or- has become a vital part of the Bank's work in Africa and else- ganization for Animal Health cosponsored a global influenza where, as reflected in Bank lending of some $1.8 billion in fis- meeting in Geneva to explore possible coordination mechan- cal 2006 and the selection of agriculture as the focus of the isms. In January 2006, the Bank, the European Commission, upcoming 2008 World Development Report. The Bank's cur- and the Chinese government cosponsored an avian flu pledg- rent emphasis in this sector is on improving the rural invest- ing conference in Beijing. Pledges amounted to almost ment climate in order to increase and diversify the production $1.9 billion within a flexible financial framework, which en- of high-value commodities that enhance farmers' income and sures that donors can use instruments convenient to them to build market-driven agricultural innovation systems. contribute to a well-defined, integrated, country-owned plan. Agriculture is linked to integrated natural resource man- By the time of the first stocktaking of international action in agement such as protecting watersheds, sustaining increased Vienna, Austria, in June 2006, more than $1.1 billion had been investment in irrigation and drainage, supporting effective committed to finance specific programs launched by coun- forest law enforcement and sound governance, and promoting tries and international and regional organizations. The Bank efforts to enhance the resilience of farms, forests, and fisher- has pledged up to $500 million of IBRD and IDA financing un- ies to climate change. PROFISH, a new multidonor initiative, der its Global Program for Avian Influenza, and by the end of will address the threat of collapsing fish stocks. Meanwhile, June 2006, it had approved $147.4 million to eleven countries the global threat of zoonoses (diseases that can be transmit- to prevent or respond to outbreaks of avian flu and prepare for ted from animals to humans), such as "mad cow" disease and a possible human flu pandemic. The international commu- avian flu, has brought the issue of livestock management and nity's instruments to address avian flu also include a newly animal health back to the top of the development agenda. established $75 million multidonor Avian and Human Influ- (See www.worldbank.org/essd.) enza Facility, for which the Bank is the trustee. (See www .worldbank.org/avianflu.) ContainingAvianFlu By the end of fiscal 2006, 55 countries had reported outbreaks RespondingtoClimateChange of the H5N1 strain of the highly pathogenic avian influenza in The global community faces a major challenge in securing af- wild birds and domestic poultry, causing the death of more fordable and cost-effective energy supplies to underpin eco- than 200 million birds and severe damage to rural livelihoods, nomic growth and poverty reduction while preserving the especially in the poorest regions of developing countries. The environment. The recent Bank report, Clean Energy and World Health Organization has voiced concerns that the H5N1 Development: Toward an Investment Framework, addressed virus could mutate into a form that could eventually cause a developing-country energy needs and access to energy ADDRESSING WORLDWIDE POVERTY 17 services, controlling greenhouse gas emissions, and helping Expansion of energy services is essential for poverty reduc- developing countries adapt to climate risks. The report con- tion and economic development, but any expansion must cluded that an extensive array of technologies exists to pro- minimize the greenhouse gas emissions that contribute to vide the required energy services, but policy reform in the climate change. Mitigating these emissions will cost addi- energy sector is urgently needed to stimulate the roughly tional tens of billions of dollars annually. These funds could $300 billion a year of investment required. be provided through innovative financial instruments that the Bank is currently assessing in cooperation with partners and the private sector. Although all countries are vulnerable to climate change, the recent report emphasizes that the poorest countries and their poorest citizens are among the most vulnerable; how- ever, these countries should not be expected to bear the addi- tional costs of transitioning to a low-carbon economy. Adapt- ing to climate variability and change is a priority for developing countries and will require the transfer of existing technolo- gies, the development of new ones, and the revision of exist- ing planning standards and systems. (See www.worldbank .org/climatechange.) WorkingwithSubnationalGovernments The World Bank Group recognizes the importance of decen- tralization efforts among client governments and the growing need of subnational governments (regional, state, provincial, municipal, and local jurisdictions and their entities) to imple- ment their own development plans. To meet this need, the Bank Group is increasingly providing direct technical assist- ance and IFC financial support to subnational governments without sovereign guarantees. Building on the experience of the IFC's Municipal Fund, the Bank and IFC are developing a joint program that will mainstream subnational development activities in the Bank Group. Once initiated, the Subnational Develop- ment Program will manage and coordinate technical as- sistance and lending to subsovereign governments and draw on Bank and IFC resources to increase investment and institution building. The aim of the program is to help countries create financially viable and fiscally responsible subnational entities. Among other activities, the program will facilitate development of local credit markets and will mobilize local private financing. Most new projects to be financed through the program are expected to be in the infrastructure sector. 18 THE WORLD BANK ANNUAL REPORT 2006 PursuingGreaterAidEffectiveness Organization Doha Development Agenda negotiations, The March 2005 Paris Declaration recognized that aid vol- emphasizing substantive agricultural reform, participation by umes and aid effectiveness must be raised to achieve the all countries, and increased aid for trade. On agriculture, MDGs and support country efforts to strengthen governance Bank research underlined the critical importance of access to and improve development performance. The declaration set a developed-country markets for farm products. In cooperation clear agenda for the harmonization and alignment of donor assistance and for managing for results that is being imple- mented in 5 countries (Ghana, Mozambique, Tanzania, Uganda, and Vietnam). Good progress is being made in 10 ad- ditional countries, and elements of the agenda are being im- plemented, though less systematically, in 40 more. During fiscal 2006, the Bank participated in international efforts to establish a plan for monitoring implementation of the Paris Declaration's 56 detailed commitments. An effort to establish a baseline for the agreed-on indicators was launched in May 2006, the first-ever opportunity for a simulta- neous study and coordination of aid in a large number of countries. Impediments to broader progress remain, however, even in countries where governments and donors are working on the agenda. These impediments include inadequate data, inappropriate staff incentives (in donor agencies and govern- ments), institutional rigidities, poor communication, and in- sufficient institutional leadership in some donor agencies. (See www.aidharmonization.org.) TWOPILLARSOFTHEBANK'SANTIPOVERTYSTRATEGY Improving the investment climate and empowering people are the two pillars of the Bank's long-term antipoverty strategy. The pillars intertwine, with progress in human development providing the capacity to sustain improvements in the invest- ment climate, support economic growth, and address eco- nomic and social inequality. Pillar1:ImprovingtheInvestmentClimate The Bank fosters economic growth through advocacy for more equitable trade, support for policy reform, and project-specific investments in trade, private sector initiatives, infrastructure, the financial sector, and extractive industries, often in part- nership with other Bank Group institutions. PromotingOpennesstoTrade The Bank continued to advocate for an ambitious outcome to the World Trade ADDRESSING WORLDWIDE POVERTY 19 agreements sponsored by the United States and the European Union, particularly in Africa and Central America. (See box 1.3 and www.worldbank.org/trade.) AssessingtheBusinessEnvironment The third annual report of the Doing Business Project, Doing Business in 2006: Creat- ing Jobs, provides quantitative indicators of business con- straints in 155 countries. This year's report added three new indicators: on the taxes that businesses pay in each country, on dealing with business licenses, and on countries' proce- dural requirements for importing and exporting. It also pre- sented an aggregated global ranking for the first time. The Bank's enterprise surveys, another source of data on the business climate in developing countries, now cover 51,000 firms in 76 countries. These data fed into 23 investment cli- mate assessments and activities delivered to the client in fis- with the IMF and other partners, the Bank designed proposals cal 2006. To help client countries strengthen their corporate for increasing aid for trade, including the enhancement of the governance framework, the Bank completed 7 country corpo- Integrated Framework for Trade-Related Technical Assistance rate governance assessments in fiscal 2006, bringing the total for least developed countries. Trade-related lending has to 55 of both new assessments and updates on previous ones. almost tripled over the past three years, rising to 6 percent of In addition, the Bank launched three pilot assessments of the its overall portfolio. governance of state-owned enterprises. The analyses in these Integrating trade into national growth strategies remains assessments are useful in guiding government reforms and at the core of the Bank's work. In addition, the Bank conduc- have supported Bank projects in more than 30 countries. ted trade analyses and provided support to more than 35 Commitments for new projects with private sector develop- countries on issues ranging from standards harmonization to ment as a major theme amounted to more than $6.1 billion in customs reform. The Bank continues to support its clients fiscal 2006. engaged in negotiating regional trade agreements. It has Going beyond the assessment phase, the Bank Group also also provided analyses and technical assistance on free trade helps reform-minded governments improve their investment BOX1.3 EVALUATION: WORLD BANK SUPPORT FOR TRADE The Independent Evaluation Group's report, Assessing World port found the Bank was effective in helping developing Bank Support for Trade, 1987­2004, analyzes the Bank's countries liberalize trade regimes, but trade initiatives were contribution to freer trade in poor countries and makes con- less successful in generating a dynamic and sustained ex- crete recommendations on ways to boost trade opportunities port growth path. The report also spotlighted the high quality to reduce poverty. Between 1987 and 2004, 8.1 percent of to- of the Bank's research on trade issues and the institution's tal Bank commitments ($38 billion) went to 117 countries to role in advocating for a more equitable global trading sys- help them better integrate into the global economy. The re- tem. (See www.worldbank.org/ieg/trade.) 20 THE WORLD BANK ANNUAL REPORT 2006 climate through the Foreign Investment Advisory Service, a Group to Assist the Poor, delivered international training on joint operation with IFC. In fiscal 2006, the advisory service balancing the Anti-Money-Laundering/Combating the completed 82 projects in 43 developing countries, with 52 Financing of Terrorism regulation with the need to provide percent of advisory projects in high-risk or low-income access to finance, especially for the poor. The Bank led an countries. Many of the projects built on the analyses under- international effort to establish indicators quantifying access taken by the Doing Business Project and the enterprise to financial services. In partnership with clients and other surveys. (See www.doingbusiness.org and www .enterprisesurveys.org.) Increasing Support for Infrastructure In fiscal 2006 there were 125 new projects approved with an infrastructure com- ponent; these totaled more than $8 billion. This increase of approximately 10 percent over the previous fiscal year is in line with the Bank's Infrastructure Action Plan, developed in 2003 to respond more robustly to client requests involving both infrastructure investment needs and broader develop- ment objectives as outlined in the MDGs. Most of the com- mitments were in the transportation sector (40 percent) and the energy and mining sector (38 percent), followed by the water, sanitation, and flood protection sector (21 percent). Project quality has remained consistently high since the plan's inception, and the proportion of projects at risk con- tinues to be lower than the Bank average. In addition, the Bank delivered 139 analytic and advisory products related to infrastructure, one of which was a major study of lessons learned, Infrastructure at the Crossroads: Lessons from 20 Years of World Bank Experience. At the G-8's Gleneagles Summit, the Bank was asked to assume global leadership in two infrastructure-related areas: ensuring suc- cessful coordination of the sizable increase in aid provided in support of the infrastructure agenda in Africa; and creating a new framework for mobilizing investment in clean energy and development. (See "Responding to Climate Change" on page 17, www.worldbank.org/infrastructure, and www.worldbank .org/energy.) IncreasingAccesstoFinancialServicesSound and inclusive financial systems are essential to reaching the MDGs. Improv- ing access to financial services such as savings, credit, insurance, and remittances is vital to enabling the poor to take advantage of economic opportunities and guard against uncertainty. The Bank, working closely with the Consultative ADDRESSING WORLDWIDE POVERTY 21 A former child soldier solves a math problem in Rwanda in class at an ex-combatant orientation center. Funded by the World Bank and 11 donors, the Multi-Country Demobilization and Reintegration Program supports Rwanda's national demobilization and reintegration program and works in six other countries in the Great Lakes region. development institutions, the Bank is seeking more system- United Nations agencies, and other international financial atic ways to incorporate indicators of access to financial institutions. The third Global Monitoring Report on the MDGs, services into processes for setting development priorities. In Strengthening Mutual Accountability: Aid, Trade, and Gover- addition, it has studied the effects of financial access on the nance, a joint Bank-Fund publication, identifies measures to attainment of the MDGs. Finally, the Bank has intensified its make aid work more effectively and ensure that donors, inter- efforts to develop risk management products aimed at national financial institutions, and developing-country govern- softening the impact on the poor of natural disasters, com- ments deliver on commitments. The report also examines the modity price fluctuations, and other shocks. (See www central role of governance in development effectiveness and .worldbank.org/finance.) proposes a framework for monitoring key elements of natio- nal governance systems. FacilitatingRemittancesforMigrantsWith 200 million mi- grants worldwide and remittance flows to developing coun- IncreasingEducationalOpportunitiesPoor children with the tries reaching $167 billion in 2005--more than double the vol- same educational opportunities as economically advantaged ume of official aid flows--international migration has become children have a better chance, as adults, in competing for vital to development. Remittances are typically distributed employment. Today, more than 100 million children of primary more widely in the receiving economy than other financial in- school age are not enrolled in school. To help achieve univer- flows such as bank loans or foreign direct investment; thus, sal primary education by 2015, the Bank has increased its they, too, contribute directly to reducing inequality. Evidence support for the Education for All Initiative. This enhanced sup- also shows that remittances reduce poverty in those house- port came primarily through the Education for All Fast-Track holds where they account for a significant proportion of in- Initiative (FTI), a global partnership between donor and devel- come. Thus, immediate gains can result from policy adjust- oping countries that made great strides in the past year ments, as well as promotion of market competition among thanks to new financial and technical aid from donors. The service providers, aimed at reducing the cost of transmitting FTI has increased domestic and external financing for educa- remittances. The Bank is working to improve systems for in- tion in developing countries and has made that aid more ef- ternational remittance flows and access to finance. The Gen- fective. It also has led to a more productive policy dialogue, eral Principles for International Remittance Services was expanded flexible aid for primary education, and increased published with the Bank for International Settlements to help donor commitment to cost-effective standards for school con- develop secure and efficient remittance payment systems. struction. All low-income countries committed to achieving (See www.bis.org/press/p060313.htm.) universal primary education are eligible for FTI funds. Cur- rently, 20 countries are Fast-Track partners. An IEG report, Pillar2:EmpoweringPoorPeople From School Access to Learning Outcomes, calls attention to Investing in people to empower them to lead productive lives, the striking progress in school enrollments in the past 15 make sound decisions about their future, and preserve the years, as well as to the crucial need to give the same empha- environment forms the second pillar of the Bank's antipoverty sis to learning outcomes as is given to greater access. strategy. Investments in human development improve quality In fiscal 2006, country-level donor partners endorsed the of life and foster participation in economic activities that ad- education strategies of seven countries, signifying that they vance a country's development, increase access to services, were ready to sustain significant increases in external finan- and reduce inequality. cing. Disbursements under the FTI Catalytic Fund, created for The Bank continues to monitor progress using the mea- countries with limited donor presence and support, totaled sures established in the MDGs, the global effort aimed at imp- $60.2 million. The first round of disbursements under the roving lives in developing countries by 2015. The Bank plays a Education Program Development Fund, the new fund for central role in this effort, in partnership with governments, capacity development in education, was completed in fiscal 22 THE WORLD BANK ANNUAL REPORT 2006 2006. Disbursements amounted to 45 percent of total com- mitments of $4.9 million. Twenty-eight country programs re- ceived technical and financial support from the fund. Overall, the Bank also lent $2 billion for education, higher than the total for fiscal 2005. Support for education components in projects in other sectors stood at $533 million. (See www .worldbank.org/education.) FightingCommunicableDiseasesCountries cannot aspire to greater equality while their poorest people suffer dispropor- tionately from ill health and communicable diseases. The de- velopment community has acknowledged the importance of improving health; three of the eight MDGs target reductions in ill health as a measure of development progress. HIV/AIDS. New infections and AIDS-related deaths continued to rise in 2006. The new Global HIV/AIDS Program of Action reflects the Bank's commitment to providing funding for sus- ceived by client countries and partner agencies. This pro- tained support of effective national and regional programs, gram combines an emphasis on monitoring results and focusing on strategic planning, strengthening country moni- outcomes with flexibility in approaches and lending instru- toring and evaluation systems and evidence-informed respon- ments. The program is under way in Africa, where it began ses, and accelerating implementation. The Bank's knowledge with a three-year "intensive phase" that set a financing agenda for HIV/AIDS includes impact evaluation and analytic target of $500 million from IDA by the end of fiscal 2008. work to better understand the epidemic's diversity and im- Since the launch of the booster program, the Bank has ap- prove program effectiveness (see box 1.4). proved malaria control projects and related components in Benin for $31 million, Burkina Faso for $12 million, the Malaria. The Bank intensified its support for malaria con- Democratic Republic of Congo for $30 million, Eritrea for trol through the new Global Strategy and Malaria Booster $2 million, Ethiopia for $20 million, Niger for $10 million, Program, begun in fiscal 2005, which has been well re- and Zambia for $20 million, and a subregional project in BOX1.4 EVALUATION OF HIV/AIDS ASSISTANCE An IEG evaluation of the Bank's HIV/AIDS assistance, Commit- tions in responding to the challenges of HIV/AIDS. The study ting to Results: Improving the Effectiveness of HIV/AIDS Assis- also found, however, that the highest-risk behavior was not tance, was released this year. The study reviewed the Bank's always addressed, and the efficacy of some initiatives remains commitment of $2.5 billion for HIV/AIDS activities through mid- unstudied. IEG recommended that the Bank increase the effec- 2004. IEG found that this assistance spurred countries to take tiveness of national AIDS programs by anticipating political ob- action and made their efforts more cost-effective, created insti- stacles, being more strategic, strengthening institutions, and tutions to fight the epidemic, and enlisted civil society organiza- acting on local evidence. ADDRESSING WORLDWIDE POVERTY 23 the Senegal River Basin (Guinea, Mali, Mauritania, and AchievingGenderEqualityThrough innovative research on Senegal) for $42 million--totaling $167 million in fiscal the effects of gender-based barriers to development, the 2006. Projects in at least seven other countries are un- Bank is building a knowledge base that can help countries der preparation, and the Bank is on track to commit address gender inequality in economic empowerment. During $427.5 million of its $500 million target. Also, in collabora- the past year, the Bank organized a series of workshops on tion with partner agencies, the Bank continues to explore gender and economics for development practitioners. The options to improve access to a new generation of antima- workshops were designed to strengthen developing countries' laria drugs. capacity to analyze and address the constraints imposed on economic growth by gender inequality. The Bank also hosted Tuberculosis. The Bank participated in the preparation of a high-level consultation called Promoting the Gender Equal- a new Global Plan to Stop Tuberculosis, launched at the ity Millennium Development Goal: The Implementation Chal- 2006 World Economic Forum in Davos, Switzerland. Cumu- lenge, which set a new agenda for promoting gender equality. lative Bank commitments total approximately $600 million From that meeting, a new action plan emerged that was for- and cover more than 30 countries. In addition to this direct mulated to help accelerate progress toward this goal. Finan- support, the Bank is engaged in cross-cutting work on cial support from the governments of the Netherlands, Nor- service delivery to improve tuberculosis control. And way, and Sweden continues to encourage innovation in the because tuberculosis often afflicts patients whose immune mainstreaming of gender issues in the Bank's work. Bank- systems have been compromised by AIDS, several Multi- funded projects increasingly incorporate gender analysis in Country AIDS Program operations (such as those in their design, particularly in the areas of health, education, Eritrea, Kenya, and Uganda) now include an antituber- and social protection. (See www.worldbank.org/gender.) culosis component. ImprovingEquitythroughSocialProtectionThe Bank's ImprovingMaternalandChildHealth The fourth and fifth approach to social protection is guided by the social risk man- MDGs address reductions in child and maternal mortality. In agement framework through which it supports the unem- fiscal 2006, Bank commitments for child and reproductive and ployed, develops equitable labor market practices, works to maternal health increased to $301.3 million, with disburse- eliminate child labor, helps create viable old-age income ments of $259.8 million. Results of global efforts are begin- security for poor people, and provides social safety nets for ning to show. A recent report prepared in connection with vulnerable groups. During the past year, the Bank focused on IDA's 14th replenishment of funds showed that the proportion including equitable job creation in the poverty reduction and of births attended by skilled health personnel increased from growth agenda. It also implemented a promising labor market 40 percent during 1997­99 to 44 percent in 2002. Mortality research strategy that emerged from a Bank-wide stock- among children under five fell from 125 per 1,000 live births taking process. Two publications on pension systems and re- to 120 during the same period. As an example, an IEG evalua- forms were also released: Old Age Income Support for the tion of interventions in Bangladesh to improve maternal and 21st Century: An International Perspective on Pension Sys- child health and nutrition showed reduced death rates for tems and Reform; and Pension Reform: Issues and Prospects children under five and a two-thirds decrease in maternal for Non-Financial Defined Contribution (NDC) Schemes. (See mortality. The gains were attributed to an increase in govern- www.worldbank.org/sp.) ment service delivery supported by a Bank-led donor consor- tium. Resources were also used to expand family planning EncouragingSocialDevelopment The Bank's social develop- services and increase childhood immunization rates from less ment strategy highlights inclusion, cohesion, and account- than 2 percent to nearly 75 percent. (See www.worldbank ability. To improve governance and service provision and .org/hnp.) support reforms linking local governments to communities, 24 THE WORLD BANK ANNUAL REPORT 2006 the Bank provided approximately $2 billion in community- poverty reduction strategies in 19 countries and promoted driven development funds. The Bank also enhanced social ac- funding of civil society development efforts through a variety of countability methodologies used by Bank staff to help coun- mechanisms, including the community-driven development tries expand citizen responsibility in holding public officials portfolio. Significant Bank­civil society collaboration occurred accountable. Equitable project outcomes have also improved on Asian tsunami reconstruction efforts, particularly in In- since expanded poverty and social impact analyses were inte- donesia, where more than half of the foreign assistance spent grated into the early stages of Bank operations. (See box 1.5 on relief during the first year was channeled through civil soci- and www.worldbank.org/socialdevelopment.) ety organizations. (See www.worldbank.org/civilsociety.) IncreasingtheParticipationofCivilSocietyCivil society SupportingEnvironmentalSustainabilityThe Bank strives to organizations play an important role in giving voice to the help developing countries meet the cross-cutting goal of disenfranchised, promoting transparency and good ensuring environmental sustainability by integrating governance, and providing community services. Bank staff environmental concerns into all development-related work. members at all levels continue to engage in substantive Through the implementation of its environment strategy, which dialogue with civil society organizations on issues such as addresses the links between environment, poverty, and debt, trade, and extractive industries, especially during the economic growth, with a particular emphasis on the health, Bank-Fund Annual and Spring Meetings. Staff members also livelihoods, and vulnerability of poor people, the Bank is reach out to civil society through meetings in-country, at cooperating with partner countries to systematically evaluate headquarters, and through video conferences. their environmental priorities, the environmental implications The Bank undertook country-based research on social of key policies, and their capacity to address development accountability, participatory budgeting, and community empo- priorities and related environmental concerns. At the same werment, and encouraged civil society participation in Bank time, evidence points increasingly to the country, regional, and operations. Civil society organizations were consulted on nearly global implications of environmental management--be it in the all of the 31 country assistance strategies approved by the Bank form of climate change, health effects, or natural hazards-- in fiscal 2006, and they were consulted during the preparation of which demand more attention from the Bank. The Bank has 72 percent of new loans approved. The Bank encouraged bor- developed a set of measurements to assess changes in natural rowing governments to engage civil society in the formulation of wealth taking place in developing countries as a way to track BOX1.5 2006 GLOBAL DEVELOPMENT MARKETPLACE Africa and the private sector featured prominently among outside experts that their projects offered innovative ideas the 118 finalists from 55 countries at the Global Develop- with a high potential for development impact. The Bill & ment Marketplace, held in Washington, DC, in May. In addi- Melinda Gates Foundation, the Global Environment Facility, tion, finalists from Bhutan, The Gambia, Lesotho, Turkmeni- the Google Foundation, the International Finance Corpora- stan, and Vanuatu competed for the first time, promoting tion, and the World Bank funded this year's awards. In addi- their ideas on clean water, sanitation, and energy for the tion to the global event, nine country-level Development poor in developing countries. The competition awarded a to- Marketplaces covering 13 countries were held in 2006. tal of $5 million to 30 winners. Each winner received a grant These programs focused on local development themes. (See of up to $200,000 after convincing a jury of World Bank and www.developmentmarketplace.org.) ADDRESSING WORLDWIDE POVERTY 25 progress in achieving the MDG of environmental sustainability. aligned with country development plans, and it has modified (See www.worldbank.org/environment.) its guidance on the appraisal process to include a sharper fo- cus on results management at the country-level. StrengtheningResultsManagement In addition, the Bank has initiated the Development Impact The Global Monitoring Report 2006 finds progress in shifting Evaluation (DIME) Initiative to coordinate impact evaluations the emphasis of international financial institutions and coun- for projects and programs supported by Bank lending. To try programs toward results management; that is, managing date, the Bank's Independent Evaluation Group has played a for outcomes rather than managing for inputs. This shift to- leading role in evaluating impact institutionwide and for spe- ward results requires a long-term vision, additional re- cific country programs and projects. The DIME Initiative pro- sources, and support for capacity strengthening in partner poses to take such evaluations a step further to guide the countries. To facilitate this shift, the Bank is implementing Bank in its shift to results management. Currently, two dozen changes in its key instruments and procedures. For example, rigorous evaluations on education projects, conditional cash the Bank has mainstreamed the use of a results-based coun- transfer programs, and slum-upgrading initiatives are under try assistance strategy to ensure that country programs are way through DIME. QUALITY ASSURANCE GROUP FINDINGS In the 2005 review of the Bank's active lending portfolio, the Quality · be vigilant about identifying problems and addressing them as they Assurance Group found that more than 80 percent of projects com- arise; and pleted during fiscal 2005 will achieve their development objectives. · disseminate the results of World Bank analytic and advisory activities to Ten years earlier, a similar review found the Bank's work unsatisfac- maximize the impact of this work. tory in one out of four cases. In fiscal 2005, that figure fell to one in With respect to nonlending services, the review also showed improve- ten. Quality, however, is rated as only moderately satisfactory in a ment in analytic and advisory activity linkages, particularly in the con- quarter of projects. To expand the Bank's portfolio without sacrificing text of poverty reduction strategy papers and country frameworks. Also, gains already made, the Quality Assurance Group recommends that assessments of individual economic and sector work tasks and techni- staff members cal assistance activities have shown progress on a broad front; however, · ensure that project designs match realities on the ground, especially assessments of overall country analytic and advisory activities have in fragile states; shown room for improvement. 26 THE WORLD BANK ANNUAL REPORT 2006 2 REGIONAL PERSPECTIVES WORLDBANKREGIONS,COUNTRYOFFICES,ANDBORROWERELIGIBILITY The World Bank today operates out of more than 100 offices worldwide. Increased presence in client countries is helping the Bank to better understand, work more closely with, and provide faster service to clients. Three-fourths of outstanding loans are managed by country directors located away from the Bank's Washington, DC, headquarters. Thirty percent of staff are based in country offices. LATIN AMERICA AND THE CARIBBEAN FY06 New Commitments IBRD | $5,654.1 million IDA | $256.4 million Portfolio of Projects | $16.6 billion Countries eligible for IBRD funds only Countries eligible for blend of IBRD and IDA funds Countries eligible for IDA funds only Inactive IDA-eligible countries Countries not receiving Bank funds Offices of the World Bank Offices with the country director present Bank region boundaries 28 THE WORLD BANK ANNUAL REPORT 2006 MIDDLE EAST AND NORTH AFRICA EUROPE AND CENTRAL ASIA FY06 New Commitments FY06 New Commitments IBRD | $1,333.6 million IBRD | $3,531.9 million IDA | $367 million IDA | $512.8 million Portfolio of Projects | $6.6 billion Portfolio of Projects | $16.5 billion EAST ASIA AND PACIFIC FY06 New Commitments IBRD | $2,344.3 million IDA | $1,057.2 million Portfolio of Projects | $19.5 billion SOUTH ASIA FY06 New Commitments IBRD | $1,231 million IDA | $2,566.2 million Portfolio of Projects | $17.4 billion AFRICA FY06 New Commitments IBRD | $40 million IDA | $4,746.6 million Portfolio of Projects | $18.6 billion IBRD 32613R2 JULY 2006 REGIONAL PERSPECTIVES 29 AFRICA In fiscal 2006, 15 countries, not including those with oil countries with sound financial management and a com- resources, extended a decade-long median annual growth mitment to poverty reduction. The Bank also adopted its rate of 5.3 percent. Additionally, five countries recorded first Africa Action Plan, which is focused on improving sharp reductions in under-five child mortality, and one of the governance, closing the infrastructure gap, and ensuring worst performers in expanding primary education, Niger, that the benefits of development are shared more equita- became one of the best. Yet Africa remains the world's bly. To promote good governance, accountability, and a biggest development challenge. More than 314 million sustained focus on pro-poor programs, the Bank took Africans--nearly twice as many as in 1981--live on less than decisive action in Chad, the Republic of Congo, Ethiopia, $1 a day. Thirty-four of the world's 48 poorest countries, and and Kenya. 24 of the 32 countries ranked lowest on the United Nations During the past year, Africa experienced positive gover- Development Programme's Human Development Index, are nance and leadership changes. The first female African in Africa. More than 3 million Africans are killed each year by president was elected in Liberia. Ghana and Rwanda became HIV/AIDS and malaria, diseases that, combined, are esti- the first African countries to submit their governance mated to cost more than 1 percentage point of Africa's per programs to scrutiny by the African Peer Review Mechanism. capita growth each year. (See www.nepad.org.) For the first time, a former African In mid-2005, the donor community committed to president was arrested and charged before an international doubling aid to Africa to $50 billion per year by 2010. The tribunal for his role in violent conflicts. Cabinet ministers World Bank is a participant in the Multilateral Debt Relief resigned or were jailed in Cameroon and Kenya. And a South Initiative, under which it expects to provide $37 billion in African vice president was dismissed for alleged involvement debt relief over 40 years. The bulk of it will go to African in corruption. AFRICA FAST FACTS Total population: 0.7 billion Population growth: 2.1% TOTALFISCAL2006 TOTALFISCAL2006 Life expectancy at birth: 46 years NewCommitments Disbursements Infant mortality per 1,000 births: 100 IBRD $40 million IBRD $4 million Female youth literacy: 77% IDA $4,746.6 million IDA $4,003 million 2005 GNI per capita: $750 Number of people living with HIV/AIDS: 24.8 million PortfolioofprojectsunderimplementationasofJune30,2006:$18.6billion Note: Life expectancy at birth, infant mortality rate per 1,000 live births, and female youth literacy are for 2004; HIV/AIDS data are from the UNAIDS 2006 Report on the Global AIDS Epidemic; other indicators are for 2005 from the World Development Indicators Database. 30 THE WORLD BANK ANNUAL REPORT 2006 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Angola Chad Gabon Malawi São Tomé and Principe Togo Benin Comoros The Gambia Mali Senegal Uganda Botswana Congo, Democratic Ghana Mauritania Seychelles Zambia Burkina Faso Republic of Guinea Mauritius Sierra Leone Zimbabwe Burundi Congo, Republic of Guinea-Bissau Mozambique Somalia Cameroon Côte d'Ivoire Kenya Namibia South Africa Cape Verde Equatorial Guinea Lesotho Niger Sudan Central African Eritrea Liberia Nigeria Swaziland Republic Ethiopia Madagascar Rwanda Tanzania The positive developments leave Africans upbeat about develop irrigation and increase access to capital for agricul- their future. A Gallup Poll found that 52 percent of respon- tural investment, with the goal of raising agricultural produc- dents expected 2006 to bring economic prosperity, and 57 tion and incomes for some 200,000 households. percent expected the year to be better than 2005. The Global Strategy and Booster Program for malaria control increased overall Bank funding to fight this deadly WORLD BANK ASSISTANCE disease in eight countries by more than 300 percent over the The Bank is the largest provider of development assistance to previous year. In Benin, the Democratic Republic of Congo, Africa, and it has increased its support dramatically over the Niger, and Zambia, the program focused on the rehabilitation past five years. IDA funding in fiscal 2006 of $1.1 billion in of basic health infrastructure and the provision of insecticide- grants and $3.5 billion in credits represented a doubling of aid treated mosquito bed nets and malaria treatment. In four from fiscal 2000, and disbursements of $4 billion represented riparian countries of the Senegal River Basin--Guinea, Mali, an increase of more than 100 percent. Two IBRD loans totaled Mauritania, and Senegal--malaria control will be part of a $40 million. water resources development program funded by the Bank. The Bank's strategy for assisting Africa is outlined in the report titled Strategic Framework for Assistance to Africa, REDUCING CONFLICT AND FORGING ENGAGED SOCIETIES which draws on the report Can Africa Claim the 21st Century? ConflictisestimatedtocostaffectedAfricancountries2.2 The framework focuses on reducing conflict, improving percentagepointsofeconomicgrowtheachyear.Incollabora- governance, investing in people, improving aid effectiveness, tionwiththeNewPartnershipforAfrica'sDevelopment and increasing economic growth through enhanced competi- (NEPAD),theBankisworkingtoachievepeaceandstability, tiveness and trade. It is complemented by the Africa Action bothofwhichareneededtoaccelerategrowth,attractforeign Plan. (See chapter 1, "Africa Action Plan.") investment,andincreaseexports.Infiscal2006,theBank The Bank maintained its focus on poverty reduction. begandisbursementsfromtwomultidonortrustfundsforthe Among other initiatives, it provided funding to improve basic reconstructionofSudan.Tornapartby21yearsofarmed service delivery in Niger; expanded access to financial conflict,SudanisoneofthecountrieswheretheBankworks services in Tanzania; funded labor-intensive public works and towardeconomicrecoveryandreintegrationofformercombat- job creation programs in Benin, Burundi, and the Democratic antsintosocietyundertheLow-IncomeCountriesunderStress Republic of Congo; mobilized local government and civic Initiative.ThroughoutAfrica,theBankalsohaspursuedits participation to preserve critical services in health, education, commitmenttoincreasingtransparencyandreducingprofits agriculture, and access to safe water in Ethiopia; built the fromtheillegaltradeincommoditieslinkedtoconflict,suchas capacity of key ministries in Kenya to fight corruption, and oil,gas,diamonds,timber,andpreciousmetals. enhanced transparency and accountability; and improved governance in the forestry and mining sectors in the Demo- BUILDING THE CLIMATE FOR INVESTMENT cratic Republic of Congo. TheAfricaActionPlanpromotesexpansionofpublic-private The Bank teamed with development partners to launch partnershipsandinnovativefinancingapproaches.TheBank, programs including the Africa Stockpiles Program, which is IFC,andMIGAareworkingtocombinethecomplementary aimed at eliminating stocks of obsolete pesticides, and the skillsoftheWorldBankGrouptosupportadditionalprivate PROFISH Partnership, which addresses fisheries depletion participationinpriorityinfrastructureprojects.TheAfricaCata- and the degradation of marine habitats. Funds also went to lyticandGrowthFund--establishedinMarch2006toaccelerate Nigeria to combat avian flu, and to Zambia to increase the growth,povertyreduction,andattainmentoftheMillennium commercialization of smallholder agriculture. In Malawi, DevelopmentGoalsinwell-performingcountries--supportsre- assistance was provided to feed people affected by the gionalprogramsandstrengthenseconomicreforms.TheBank drought-induced famine. Program funding was also used to Group'sDoingBusiness2005:RemovingObstaclestoGrowth REGIONAL PERSPECTIVES 31 FIGURE 2.1 FIGURE 2.2 AFRICA AFRICA IBRDAND IDALENDING BYTHEME | FISCAL 2006 IBRDAND IDALENDING BY SECTOR | FISCAL 2006 SHARE OFTOTAL OF $4.8 BILLION SHARE OFTOTAL OF $4.8 BILLION Financial & Private Rule of Law 4% 21% Sector Development Industry & Trade 7% 7% Education Finance Public Sector Energy&Mining 11% 3% Governance 20% Water, Sanitation 9% Trade & Integration 8% &Flood Protection Environmental& Transportation 13% NaturalResource Agriculture, Fishing Economic 5% Management 12% & Forestry Management 1% Social Protection& 6% Urban Development Health & Other Risk Management 5% Social Services 13% 11% Rural Development Social Development, Information & Law & Justice Gender & Inclusion 4% 14% Human Development Communication <1% 26% &Public Administration registering property; and advocate for the elimination of the cascading tariffs that penalize value-added "made in Africa" goods in global markets. REGIONAL INTEGRATION: A PILLAR FOR BUILDING PROSPERITY The Africa Action Plan recognizes regional integration as one of the main pillars on which prosperity will be achieved on a continent with 15 landlocked economies and a gross domes- tic product the size of Belgium's. Regional lending in Africa (for multicountry pilot projects) in fiscal 2006 exceeded $475 million, three times that of fiscal 2005. The programs funded trade facilitation, regional approaches to HIV/AIDS, private sector development, regional power systems, telecommuni- cations, transport, health, tertiary education, agricultural notedthatmostAfricancountriesremainhigh-cost,high-risk research, migratory pests, food security, transnational placestodobusiness,althoughRwanda'sreformstonurture environmental issues, and the weather-related vulnerability privatesectorpotentialasanengineforgrowthandjobcreation of rural communities. In Kenya, Rwanda, Tanzania, and werecitedasapositivedevelopment.Asaresultofthechal- Uganda, the Bank funded programs to facilitate regional lengesandthecostofdoingbusiness,theregionreceivedjust trade and transport systems, focusing on railways in particu- $22billionofthe$237billionintotalforeigndirectinvestment lar. The Bank also extended support to Burkina Faso, indevelopingcountriesin2005.Thebulkofthisinvestmentwas Cameroon, Guinea, and Mali for a project to improve air inoil,gas,minerals,andservices. transport safety and bring the industry closer to full compli- Most oil producers benefited from higher oil prices, but ance with the safety standards of the International Civil the region's net oil-importing countries experienced a Aviation Organization. cumulative loss of around 3.5 percent of gross domestic product, largely as a result of those prices. Many countries' AUGMENTING,SIMPLIFYING,ANDHARMONIZINGAIDFLOWS exports expanded by about 8 percent, but failure to reach an The Bank supports implementation in Africa of the Paris agreement on the Doha Round of trade negotiations, com- Declaration, which recognizes that governments must design bined with restrictions on global trade, made this success and own development priorities, and their international inadequate to offset the continuing drop in Africa's share of partners must scale up and provide dependable and outcome- world trade. oriented financial flows at lower cost. To be successful, Trade expansion requires a stronger agricultural sector, African governments must commit themselves to combating which employs 70 percent of Africa's labor force and accounts corruption, equitably sharing the dividends of growth, and for 40 percent of its exports. The Bank supports NEPAD's delivering meaningful and measurable development results. Comprehensive African Agricultural Development Program, The Bank is urging donors to honor the pledges made in 2003 which is aimed at increasing agricultural output by 6 percent at the Monterrey Summit and in 2005 at the G-8 Summit in a year through 2015. The Bank and NEPAD are also working Gleneagles, thereby helping Africa attain the 7 percent annual to liberalize intraregional trade; set up capital markets; clear economic growth needed to achieve the Millennium Develop- obstacles to starting a business, protecting investors, and ment Goals. (See www.worldbank.org/afr.) 32 THE WORLD BANK ANNUAL REPORT 2006 TABLE 2.1 WORLDBANKLENDINGTOBORROWERSINAFRICABY THEME AND SECTOR | FISCAL 2001­2006 MILLIONS OF DOLLARS THEME 2001 2002 2003 2004 2005 2006 Economic Management 138.5 138.7 37.8 68.0 46.5 31.4 Environmental and Natural Resource Management 110.0 159.9 227.0 195.2 217.2 250.6 Financial and Private Sector Development 625.8 780.7 383.6 810.9 768.2 979.1 Human Development 399.4 739.0 811.4 618.2 620.2 673.3 Public Sector Governance 429.6 851.9 432.4 818.4 708.0 964.7 Rule of Law 34.0 22.5 34.5 28.3 30.9 179.7 Rural Development 296.3 329.2 384.1 360.7 537.2 528.6 Social Development, Gender, and Inclusion 491.8 347.4 420.0 374.3 221.8 198.5 Social Protection and Risk Management 376.4 98.3 543.7 209.2 294.3 262.7 Trade and Integration 261.5 46.4 37.2 371.5 232.0 413.1 Urban Development 206.1 279.6 425.5 261.1 211.4 304.9 Theme Total 3,369.6 3,793.5 3,737.2 4,115.9 3,887.5 4,786.6 SECTOR Agriculture, Fishing, and Forestry 212.0 210.4 303.4 268.5 215.3 585.5 Education 209.5 472.6 423.6 362.9 369.0 339.3 Energy and Mining 198.0 490.3 324.4 365.8 509.5 524.5 Finance 200.1 192.8 67.2 165.7 68.6 142.3 Health and Other Social Services 889.9 616.6 775.9 723.1 590.3 614.0 Industry and Trade 170.6 266.7 92.7 95.4 253.8 348.4 Information and Communication 21.1 33.8 41.4 52.9 20.0 5.0 Law and Justice and Public Administration 880.8 906.9 721.8 1,004.2 1,077.5 1,263.0 Transportation 229.8 491.1 690.5 716.6 507.2 602.7 Water, Sanitation, and Flood Protection 357.8 112.2 296.3 360.8 276.2 361.9 Sector Total 3,369.6 3,793.5 3,737.2 4,115.9 3,887.5 4,786.6 Of which IBRD 0.0 41.8 15.0 0.0 0.0 40.0 Of which IDA 3,369.6 3,751.6 3,722.2 4,115.9 3,887.5 4,746.6 Note: Includes all adjustment, development policy, and investment loans. Effective fiscal 2005, lending includes guarantees and guarantee facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 33 EASTASIAANDPACIFIC Economies in the East Asia and Pacific region continued to uncertainty. Countries across the region are taking steps to grow at a steady pace of 8.2 percent in 2005 and continued at manage possible outbreaks. Although avian flu has severely about the same rate in the first half of 2006. Sustained growth affected those connected to poultry farming, the impact has has lifted 50 million people out of poverty each year for the not spilled into the overall economy. past five years. With just 8 percent of the population living below $1 a day, East Asia has the chance to reduce absolute WORLD BANK ASSISTANCE poverty significantly by 2010. Much of the region's poverty The Bank's strategy for the region is to support broad-based reduction has resulted from rapid growth in China, which in economic growth, promote trade and integration, enhance the turn has increased exports from China's neighbors. The environment for good governance, increase social stability, region's exports have almost doubled over the last three years. and achieve the Millennium Development Goals. To help reach Despite the highest real oil prices in more than 25 years, those goals, the Bank approved $3.4 billion for the region in growth in 2005 has been only moderately affected. Several fiscal 2006, $1 billion in IDA credits, $84.5 million in IDA countries, most notably Indonesia, have taken action to reduce grants, and $2.3 billion in IBRD loans. Carbon fund contracts costly and regressive fuel subsidies while also encouraging in the amount of $939.3 million were signed this year, consumers and firms to adapt to higher oil prices. bringing the regional total committed for reducing global Developing countries in the region are now being chal- greenhouse gas emissions to $1.1 billion. lenged to improve their investment climate, boost efforts to In China, the Bank approved a new country partnership innovate and build skills, and protect those vulnerable to strategy that addresses equity, the environment, and the devastating shocks like health crises, job losses, and natural rural-to-urban transition. With an updated strategy for disasters. The threat of avian flu also presents a major assistance to Indonesia, the Bank has reinforced its support EAST ASIA AND PACIFIC FAST FACTS Total population: 1.9 billion Population growth: 0.8% TOTALFISCAL2006 TOTALFISCAL2006 Life expectancy at birth: 70 years New Commitments Disbursements Infant mortality per 1,000 births: 29 IBRD $2,344.3 million IBRD $1,806 million Female youth literacy: 97% IDA $1,057.2 million IDA $755 million 2005 GNI per capita: $1,630 Number of people living with HIV/AIDS: 2.4 million PortfolioofprojectsunderimplementationasofJune30,2006:$19.5billion Note: Life expectancy at birth, infant mortality rate per 1,000 live births, and female youth literacy are for 2004; HIV/AIDS data are from the UNAIDS 2006 Report on the Global AIDS Epidemic; other indicators are for 2005 from the World Development Indicators Database. 34 THE WORLD BANK ANNUAL REPORT 2006 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Cambodia Kiribati Malaysia Mongolia Philippines Timor-Leste China Korea, Republic of Marshall Islands Myanmar Samoa Tonga Fiji Lao People's Micronesia, Federated Palau Solomon Islands Vanuatu Indonesia Democratic Republic States of Papua New Guinea Thailand Vietnam for anticorruption efforts and improvements in the investment Much of the region's gross domestic product comes from climate. Post-tsunami reconstruction in Indonesia's Aceh coastal areas (especially in China), where the impact of rising province has accelerated significantly (see box 2.1), with sea levels and weather-related disasters is greatest. The thousands of land titles distributed as part of the Bank's Bank report Not If, But When examines disaster prepared- efforts to promote community-led reconstruction; $28.5 ness for the Pacific Islands, some of which are extremely million has been allocated for this activity under the World prone to these threats. In Vietnam, a natural disaster risk- Bank­managed $526 million Multi-Donor Fund for Aceh and management project is taking an innovative approach to Nias, to which 15 donors make contributions, with the reducing the impact of natural hazards, especially at the European Commission and the Netherlands being the largest community level, where vulnerability is often greatest. contributors. At the Indonesian government's request, the Under the auspices of the World Bank's Umbrella Bank organized a donor meeting just two days after the May Carbon Facility, two Chinese companies agreed to the 27, 2006, Yogyakarta earthquake and worked with the govern- largest HFC-23 (trifluoromethane) emissions reduction ment to assess the damage in time for the annual donors' project on record. The companies are expected to reduce meeting in June. In Timor-Leste, the Bank's assistance emissions by about 19 million tons of carbon dioxide annu- strategy is being reoriented to take into account the factors ally. More than half of the HFC-23 revenues flowing to the leading to the deteriorating security situation. The Bank is government of China will be used by a new Clean Develop- continuing harmonization efforts with development partners ment Fund to invest in climate change­related activities to assist the country in refocusing the reform agenda on such as energy efficiency, renewable energy, and coal mine governance issues, public finances, service delivery, and job methane recovery and use. creation, and to ensure that achievements made in strength- ening institutional capacities around petroleum revenues are BUILDING THE CLIMATE FOR INVESTMENT not lost to conflict. The Bank's policy-based lending builds institutions that Groundbreaking work on improving governance and support investment and promote economic growth. A $400 fighting corruption is being done in the region. Indonesia's million second development policy loan for Indonesia sup- country assistance strategy, for example, was the first with a ports improvements in the investment climate, public finan- governance focus. It is supported by the evolving work on cial management, and other key priorities. It also brings the safeguards strengthening in the region's project portfolio and, World Bank, the government of Japan, and the Asian Develop- more broadly, by public service and systems reforms. ment Bank together around a common policy framework. The Bank is working to address challenges posed by the Almost a dozen donors have united behind the reform Millennium Development Goals. In Mongolia, the Rural programs financed by poverty reduction support credits in Education and Development Project will enhance the quality Vietnam. Progress also continues under the economic and of education in rural primary schools. In Vietnam, where structural reform program in Lao PDR, one of the poorest access to clean water and household sanitation services is a countries in East Asia. critical need, the Red River Delta Water Supply and Sanitation Trade and integration are playing a significant role in the Project will improve services in four provinces. region's poverty reduction efforts, and the Bank is supporting The Bank is working closely with technical agencies and new areas of that work with a customs modernization project governments to prevent, prepare for, and control the spread in Vietnam. The Bank cosponsored a conference on financial of avian flu, which continues to be a threat in East Asia. In sector diversification, with a final report on the issue to be Vietnam, projects to address both animal and human health presented at the Bank's Annual Meetings in Singapore in issues are under way; a new operation for the Lao People's September 2006. Democratic Republic was approved. Other risks come from Infrastructure continues to be a challenge, as noted in natural disasters, especially hurricane-strength cyclones. last year's joint study, Connecting East Asia. With new REGIONAL PERSPECTIVES 35 FIGURE 2.3 FIGURE 2.4 EASTASIAAND PACIFIC EASTASIAAND PACIFIC IBRDAND IDALENDING BYTHEME | FISCAL 2006 IBRDAND IDALENDING BY SECTOR | FISCAL 2006 SHARE OFTOTAL OF $3.4 BILLION SHARE OFTOTAL OF $3.4 BILLION Financial & Private Rule of Law <1% 22% Sector Development Industry & Trade 1% 8% Education 3% Trade & Integration 6% Finance Environmental&Natural Public Sector 12% ResourceManagement Energy&Mining 12% Water, Sanitation Governance 11% 17% &Flood Protection Economic 13% UrbanDevelopment Management 2% Transportation 19% Agriculture, Fishing Social Protection & 11% & Forestry Risk Management 4% Health & Other 14% Rural Development Social Services 5% Social Development, Information & Law & Justice Gender & Inclusion 2% 17% Human Development Communication <1% 20% &Public Administration energy projects this fiscal year in China, Indonesia, the region's forests. A major judicial conference held in the Philippines, and Vietnam, the Bank is contributing to energy Philippines brought together judges from around the efficiency and improved transmission and distribution. world to talk about improving the skills and effectiveness Construction on the Nam Theun 2 Hydropower Project in of the courts. The multidonor, Bank-administered Min- Lao PDR is moving ahead satisfactorily, with continued danao (Philippines) Trust Fund­Reconstruction and Devel- efforts to ensure that construction progress is matched by opment Program was launched to promote inclusive and efforts to mitigate the impact on people and the effective governance processes. The first phase of this environment. program has begun and is focused on developing the capacity of local institutions. FOSTERING PARTICIPATION IN DEVELOPMENT China, Papua New Guinea, the Philippines, and Vietnam The Bank is working to enhance the environment for all held development marketplaces this year, granting more governance at national and subnational levels. A commu- than $2.3 million to civil society groups to test new nity-driven development initiative is investigating how approaches to local development challenges (see box 1.5). community development projects can enhance demand Public information centers around the region have made for good governance. Missions to Cambodia and the more information available to people with disabilities, Philippines under the Forest Law Enforcement and especially the blind, and are working with local groups to Governance Initiative are looking at how improved law increase understanding of development issues. (See www enforcement can contribute to sustainability in the .worldbank.org/eap.) BOX 2.1 REBUILDING PEACE IN ACEH After the August 2005 Helsinki Peace Accord between the the International Organization for Migration, the United government of Indonesia and the Free Aceh Movement, Nations Development Programme, Japan, and the United the government asked the Bank to help support the peace States in cooperation with the provincial government. The process. The Bank has since distributed peace posters and program includes a comprehensive research program to copies of the peace agreement, piloted peace radio support policy making, which involves completing an training, and taken part in Forum Bersama to reintegrate assessment of reintegration needs. The program will include former combatants into their communities. The analytic work on the elections, an evaluation of the reinte- Kecamatan Development Program is working with the gration program, and a study analyzing how to mainstream International Organization for Migration to provide conflict-sensitive principles into tsunami aid. reintegration grants, and the Support for Poor and Disadvantaged Areas Program will bring those areas into The Bank has helped develop innovative approaches for the reconstruction process and provide transitional monitoring corruption across the main Aceh transport routes support to ex-combatants. so that demands for illicit payments, which have contributed to rising construction costs, can be tracked. The Bank is also Bank support for the peace process includes working closely monitoring conflict trends and reintegration dynamics at the with the Aceh Monitoring Mission, the European Union, request of the provincial government. 36 THE WORLD BANK ANNUAL REPORT 2006 TABLE 2.2 WORLDBANKLENDINGTOBORROWERSINEASTASIAANDPACIFICBY THEME AND SECTOR | FISCAL 2001­2006 MILLIONS OF DOLLARS THEME 2001 2002 2003 2004 2005 2006 Economic Management 0.0 4.8 29.7 0.0 87.0 78.7 Environmental and Natural Resource Management 399.3 102.3 232.3 432.2 446.9 396.4 Financial and Private Sector Development 310.9 512.8 458.8 553.9 340.6 720.7 Human Development 52.6 226.4 152.7 164.6 184.6 543.7 Public Sector Governance 65.1 127.4 341.5 299.0 344.5 385.9 Rule of Law 3.8 20.3 7.3 67.3 45.8 13.4 Rural Development 341.6 360.9 411.7 400.9 484.1 465.7 Social Development, Gender, and Inclusion 248.0 173.0 143.7 167.2 241.1 83.3 Social Protection and Risk Management 239.4 138.7 161.5 5.5 88.7 144.9 Trade and Integration 40.0 43.3 138.0 82.9 126.5 112.1 Urban Development 433.1 63.6 233.6 399.2 493.5 456.9 Theme Total 2,133.8 1,773.6 2,310.8 2,572.7 2,883.3 3,401.6 SECTOR Agriculture, Fishing, and Forestry 109.7 151.2 106.7 290.4 207.9 373.3 Education 14.8 134.6 225.7 118.6 228.0 287.9 Energy and Mining 142.2 314.5 254.3 67.2 359.1 425.2 Finance 87.5 219.2 22.7 49.0 213.1 197.6 Health and Other Social Services 217.3 243.8 184.1 84.3 204.3 160.6 Industry and Trade 151.8 9.4 32.5 78.7 159.1 29.3 Information and Communication 12.5 11.1 6.6 0.0 5.0 5.3 Law and Justice and Public Administration 257.4 115.2 385.1 257.5 436.6 693.6 Transportation 729.7 540.2 684.3 1,209.9 306.7 652.3 Water, Sanitation, and Flood Protection 410.8 34.4 408.7 417.1 763.7 576.5 Sector Total 2,133.8 1,773.6 2,310.8 2,572.7 2,883.3 3,401.6 Of which IBRD 1,136.1 982.4 1,767.1 1,665.5 1,809.8 2,344.3 Of which IDA 997.7 791.2 543.7 907.2 1,073.6 1,057.2 Note: Includes all adjustment, development policy, and investment loans. Effective fiscal 2005, lending includes guarantees and guarantee facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 37 SOUTHASIA DomesticreformsandexternalassistanceinSouthAsiahave largest conflict-affected population--some 71 million people helpedfuelrapideconomicgrowth,whichhasaveraged5.5 in Afghanistan, Nepal, and Sri Lanka. percentayearforthepasttwodecades.Grossdomestic Thevulnerabilityoftheregiontofrequentandseverenatural productisestimatedtohavegrownby6.9percentin2005.This disasters--includingannualfloodinginBangladesh;the2004 strongperformancehasputSouthAsiaontracktoachievethe tsunamiaffectingMaldives,SriLanka,andsouthernIndia;and MillenniumDevelopmentGoalofhalvingpovertyby2015. theOctober2005earthquakeinnorthernPakistan--hasledthe Long-termgrowthinSouthAsiaisforecasttoremainaround Banktofocusonemergencypreparedness.Followingthe 5.5percentthrough2015,reflectingarisingcontributionto massiveearthquakeinPakistanthatleft73,000peopledead, growthfromtheprivatesector.Tradereforms,privatization, morethan70,000severelyinjuredordisabled,andmorethan infrastructuredevelopment,andliberalizationandderegulation 2.8millionwithoutshelter,theWorldBankandtheAsian ofthebankingsectorareallexpectedtoimprovetheinvest- DevelopmentBankundertookajointDamageandNeeds mentclimate,productivitygrowth,andultimately,incomes. Assessmentthatestimatedthecostofthedisasterat$5.2 But South Asia faces enormous human development billion.Twoweeksaftertheearthquake,theBankprovided challenges. Four hundred million South Asians live on less $470milliontohelpwithreconstructionandtosafeguard than $1 a day. Human deprivation remains extreme, espe- ongoingreformandpovertyreductionprograms.InDecember, cially for disadvantaged populations and children. Malnutri- anadditional$400millionwasapprovedtoreduceimmediate tion is pervasive. South Asia is not on track to achieve the sufferingandrestorelivelihoods,reconstructhousing,and child mortality Millennium Development Goal, and India's financeneededimports.Thesecommitments,mostlyIDA population of HIV-infected people numbers among the credits,werepartoftheinstitution'soverallpledgeof$1billion highest in the world. The region also contains the world's forearthquakerecovery(seebox1.1). SOUTH ASIA FAST FACTS Total population: 1.5 billion Population growth: 1.6% TOTALFISCAL2006 TOTALFISCAL2006 Life expectancy at birth: 63 years New Commitments Disbursements Infant mortality per 1,000 births: 66 IBRD $1,231 million IBRD $1,034 million Female youth literacy: 65% IDA $2,566.2 million IDA $3,218 million 2005 GNI per capita: $680 Number of people living with HIV/AIDS: 6.2 million PortfolioofprojectsunderimplementationasofJune30,2006:$17.4billion Note: Life expectancy at birth, infant mortality rate per 1,000 live births, and female youth literacy are for 2004; HIV/AIDS data are from the UNAIDS 2006 Report on the Global AIDS Epidemic; other indicators are for 2005 from the World Development Indicators Database. 38 THE WORLD BANK ANNUAL REPORT 2006 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka WORLD BANK ASSISTANCE TheBankapprovednearly$3.8billionforSouthAsiainfiscal of the Bangladesh strategy is governance (see box 2.2); the 2006,$1.2billioninloansfromIBRDand$2.6billioninIDA Bhutan strategy focuses on connecting communities to commitments,ofwhich$275millionweregrants.Thisassis- markets and promoting private sector development; and the tanceseekstoaddresstheregion'svasturbanandrural Pakistan strategy sets forth a broad-based plan for address- infrastructuredeficitandweaknessesinitsinvestmentclimate, ing poverty in various dimensions, including human develop- includingcorruptionandredtape.Banksupportisdesignedto ment, infrastructure, governance, and vulnerability. helpacceleratehumandevelopmentintheregionbyfocusingon fourcross-cuttingissues:equityandinclusion,HIV/AIDS, BUILDING THE CLIMATE FOR INVESTMENT regionalintegration,andpublicaccountability.TheBankis The Bank completed two investment climate assessments in focusingonimprovedgovernance,forexample,bysupporting South Asia: one for Afghanistan, the first in a postconflict governmentprocurementreformsinBangladesh,India,and country; and one in Maldives. The Bank also started work on Nepal. new investment climate assessments for Bangladesh, India, TheBankcontinueditssupportforruraldevelopment, and Pakistan. education,andhealth.InSriLanka,approximately550,000 TheBankisaddressingdeficienciesintheregion'sinvest- mostlypoorchildrenwhoareatriskofnotcompletingbasic mentclimate--weakinfrastructure,redtape,andcorruption.In educationwillbenefitfroma$60milliongrantthatimproves Afghanistan,thechallengeistoextendreformsbeyondKabul accesstoeducation.InAfghanistan,whichhasoneoftheworst andimplementreformsthatwillgeneratebroad-basedgrowth. healthsystemsintheworld,theBankapproveda$30million An$80millionsecondinstitution-buildingprojectseeksto supplementalgranttoexpandbasichealthservicedelivery.The expandandsustainreformsinthecountry'spublicadministra- IndianstateofTamilNadureceiveda$120millioncreditto tionandfiscalmanagement.Bangladeshreceiveda$200million buildsocialcapitalinpoorcommunitiesbyinvolvingtheminthe developmentsupportcredittoreducethescopeforcorruption designandimplementationofchangesthatwillaffectthem. and,inturn,buildmoreeffectivegovernmentinstitutionsand Since1982,theBankhascommittedsome$380millionin improvepublicservicedelivery.India,whichcontinuestoface SouthAsiatosupportHIV/AIDSprojectsinBangladesh,Bhutan, severepowershortages,receiveda$400millionloantoincrease Pakistan,andSriLanka,andtoassessHIV/AIDSworkin reliablepowerexchangesbetweenthecountry'sregionsand AfghanistanandMaldives.Theregion'sprevalencerateofHIV/ AIDSisabout1percent,smallenoughthatconcertedaction couldstemanepidemic,butwithpocketsofhigherprevalence thatneedurgentattention.TheBankalsobeganpreparingthe ThirdNationalAIDSControlProgramforIndiaandinitiateda studyontheeconomicimpactofthediseasethere. A strong component of the Bank's strategy is its analytic and advisory work. A recent report on public finance manage- ment in Afghanistan recommended an agenda for establish- ing a fiscal framework that facilitates growth, service delivery, and poverty reduction. The Bank undertook a gender equality study in Pakistan, a regional HIV/AIDS study, a report on the role of civil society organizations in Bangladesh, a social exclusion study in Nepal, and a development policy review for India that focuses on equity and service delivery. The Bank's Board discussed new country assistance strategies for Bangladesh, Bhutan, and Pakistan. The theme REGIONAL PERSPECTIVES 39 FIGURE 2.5 FIGURE 2.6 SOUTHASIA SOUTHASIA IBRDAND IDALENDING BYTHEME | FISCAL 2006 IBRDAND IDALENDING BY SECTOR | FISCAL 2006 SHARE OFTOTAL OF $3.8 BILLION SHARE OFTOTAL OF $3.8 BILLION Financial & Private Rule of Law <1% 14% Sector Development Industry & Trade 8% 10% Education Public Sector 4% Trade & Integration 2% Finance Governance 16% Energy&Mining 13% Environmental&Natural Water, Sanitation Economic 2% ResourceManagement 8% &Flood Protection Management 1% Agriculture, Fishing Transportation 14% Social Protection& 15% UrbanDevelopment 10% & Forestry Risk Management 12% Health & Other 15% Rural Development Social Services 5% Social Development, Information & Law & Justice Gender & Inclusion 10% 10% Human Development Communication 1% 29% &Public Administration states.UrbandevelopmentwassupportedintheIndianstatesof Solidarity Program, a community-led reconstruction and rural TamilNadu,witha$300millionloan,andKarnataka,witha$216 infrastructure initiative that has reached about 8.5 million millionloan.InSriLanka,yearsofpoormaintenancehave people since its start in 2002. The Bank's own program for resultedinadegradedroadnetwork.A$100millioncreditwill youth focuses on the school-to-work transition. (See www helpimprove620kilometersofnationalroadsandreducethe .worldbank.org/sar.) proportionofnationalhighwaysinpoorconditionfrom52 percentin2005to35percentin2010. FOSTERING PARTICIPATION IN DEVELOPMENT The Bank's approach to participation empowers community groups in South Asia to make development decisions, direct resources, and have a role in projects. The emphasis is on equity and the inclusion of poorer regions, communities, and households in development projects. For instance, in India and Pakistan, the Bank supports livelihood programs that provide microfinance and self-employment opportunities to millions of poor women. In Afghanistan, the Bank approved a $40 million additional financing grant for the National BOX 2.2 THE BANGLADESH CONUNDRUM Bangladesh is 1 of only 18 developing countries with an phenomenon referred to as the Bangladesh conundrum. If annual growth rate that has never fallen below 2 percent. not addressed, poor governance will be a growth constraint, Since the 1990s, economic growth has been steady at 4 to particularly in critical areas such as power and transport. 5 percent annually, with relatively low inflation and stable The Bangladesh Poverty Reduction Strategy Paper strongly domestic debt, interest, and exchange rates. Its gross recognizes the need to improve governance and the invest- domestic product growth rate has accelerated by 1 percent- ment climate. The Bangladesh country assistance strategy is age point every decade, despite floods and other weather- aligned with the strategy paper and mainstreams gover- related catastrophes. This growth, coupled with an impressive nance so that all Bank Group interventions are as much decline in population growth rates, has led to a doubling of about governance as they are about improving sector annual per capita growth from 1.6 percent in the 1980s to performance. 3.3 percent from 1990 to 2004. The country has achieved universal primary education and has an equal number of girls The Bank's program will support Bangladesh by improving and boys in secondary school, and it is on track to reach the weak regulatory frameworks, increasing transparency, Millennium Development Goal in child mortality. enhancing capacity for public financial management and procurement, and strengthening institutions of accountabil- These growth and development gains have taken place ity. The country assistance strategy covers the period from despite widely held perceptions of weak governance, a 2006 to 2009; lending is estimated to be $3 billion. 40 THE WORLD BANK ANNUAL REPORT 2006 TABLE 2.3 WORLDBANKLENDINGTOBORROWERSINSOUTHASIABY THEME AND SECTOR | FISCAL 2001­2006 MILLIONS OF DOLLARS THEME 2001 2002 2003 2004 2005 2006 Economic Management 47.4 232.5 123.5 7.7 87.5 56.6 Environmental and Natural Resource Management 587.8 295.2 94.2 94.8 433.9 93.0 Financial and Private Sector Development 865.9 381.6 689.1 689.9 923.0 550.4 Human Development 124.8 30.2 546.9 760.6 1,041.6 391.7 Public Sector Governance 261.0 678.0 467.3 669.8 639.5 597.9 Rule of Law 36.1 59.3 12.5 2.9 10.5 7.2 Rural Development 379.5 417.2 403.7 314.1 1,132.5 568.6 Social Development, Gender, and Inclusion 240.5 414.2 197.3 642.8 265.3 366.9 Social Protection and Risk Management 118.4 164.0 184.4 98.6 337.0 472.3 Trade and Integration 398.3 70.0 197.3 52.7 63.7 138.8 Urban Development 186.8 766.2 2.6 87.8 59.0 553.7 Theme Total 3,246.6 3,508.4 2,918.7 3,421.6 4,993.3 3,797.2 SECTOR Agriculture, Fishing, and Forestry 116.1 328.1 212.6 251.9 940.8 368.9 Education 206.4 95.9 364.6 665.8 286.4 377.2 Energy and Mining 746.2 504.8 150.6 130.8 83.6 483.0 Finance 209.7 310.0 185.8 331.4 461.8 73.0 Health and Other Social Services 188.1 278.7 369.0 334.6 493.2 195.9 Industry and Trade 34.0 443.1 144.9 46.1 485.2 306.5 Information and Communication 17.7 12.4 11.5 16.9 91.9 50.0 Law and Justice and Public Administration 377.4 632.5 372.3 925.5 885.7 1,101.4 Transportation 1,294.3 758.1 1,067.6 444.8 1,181.0 520.1 Water, Sanitation, and Flood Protection 56.8 144.9 40.0 273.7 83.7 321.3 Sector Total 3,246.6 3,508.4 2,918.7 3,421.6 4,993.3 3,797.2 Of which IBRD 2,035.0 893.0 836.0 439.5 2,095.9 1,231.0 Of which IDA 1,211.6 2,615.4 2,082.7 2,982.1 2,897.4 2,566.2 Note: Includes all adjustment, development policy, and investment loans. Effective fiscal 2005, lending includes guarantees and guarantee facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 41 EUROPEANDCENTRALASIA The Europe and Central Asia region is progressing steadily lemsincludingruralpoverty,weaklocalinstitutions,decaying beyond the transition phase, which began in 1989 with the fall infrastructure,depressedone-companytowns,state-owneden- of the Berlin Wall. Markets in most of the region's 28 coun- terprisesinneedofreform,andenvironmentaldegradation tries have responded favorably to reforms, and political (seebox2.3).Legaciesofcentralplanning,theseproblemsare change in some of the Commonwealth of Independent States compoundedinsomecountriesbyshrinkingpopulations. (CIS) has improved performance. Regional economic growth eased to 5.7 percent in 2005, down from 8 percent in 2004. WORLD BANK ASSISTANCE Sustained expansion of the financial sector is boosting Assistanceduringfiscal2006reached$4billion,including$3.5 demand, but it is also increasing risks. billioninIBRDloansandguaranteesand$500millioninIDA Political developments continued apace during the fiscal commitments.TheBankdelivered98piecesofeconomicand year. The European Union opened accession negotiations with sectorworkandcompleted59technicalassistanceactivities. Turkey and Croatia; it also signed a pre-membership agree- Increasingly, Bank partnerships that involve representatives ment with Albania. Following a referendum in May 2006, from various levels of government are the preferred mode of Montenegro declared its independence from the union of business with low- and middle-income countries in the region. Serbia and Montenegro. This new approach responds to increased decentralization and WhilemembershipintheEuropeanUnionhasspurredmany recognition by governments that results at the local level often countriestomoveaheadwithcomplexreformsthatareowned spur broader reforms. Examples include the Georgia Country bycountriesthemselves,challengesremainacrosstheregion. Partnership Strategy for 2006 to 2009 and a new Albania Long-termunemploymentandaninabilitytoshiftjobstothe Country Assistance Strategy, both discussed by the Board in formalsectorremainnaggingproblems.Bulgaria,theRussian fiscal 2006. Because governance and corruption are top Federation,andothercountriesarefacedwitharangeofprob- concerns, the region is focusing on projects to reform public EUROPE AND CENTRAL ASIA FAST FACTS Total population: 0.5 billion Population growth: 0.1% TOTALFISCAL2006 TOTALFISCAL2006 Life expectancy at birth: 69 years New Commitments Disbursements Infant mortality per 1,000 births: 28 IBRD $3,531.9 million IBRD $2,550 million Female youth literacy: 98% IDA $512.8 million IDA $457 million 2005 GNI per capita: $4,110 Number of people living with HIV/AIDS: 1.5 million PortfolioofprojectsunderimplementationasofJune30,2006:$16.5billion Note: Life expectancy at birth, infant mortality rate per 1,000 live births, and female youth literacy are for 2004; HIV/AIDS data are from the UNAIDS 2006 Report on the Global AIDS Epidemic; other indicators are for 2005 from the World Development Indicators Database. 42 THE WORLD BANK ANNUAL REPORT 2006 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING This section also reports on Kosovo, Serbia andMontenegro. Albania Bulgaria Kazakhstan Moldova Tajikistan * Estonia is scheduled to graduate at the 2006 Armenia Croatia Kyrgyz Republic Poland Turkey Annual Meetings. Azerbaijan Estonia* Latvia Romania Turkmenistan Following its referendum on independence in May Belarus Georgia Lithuania Russian Federation Ukraine 2006, Montenegro declared its independence from the Bosnia and Hungary Macedonia, former Serbia and Montenegro Uzbekistan union of Serbia and Herzegovina Yugoslav Republic of Montenegro. Slovak Republic finances and modernize courts. Bank experts continue to use Bank Group's annual Doing Business report, every country in enterprise surveys to gauge perceptions about corruption. Eastern Europe improved at least one aspect of its business The Bank responded quickly to requests for support in environment in 2005--the highest rate of reform of any region. preempting an avian flu health crisis. Assistance was approved Serbia and Montenegro, the Slovak Republic, Romania, and for Albania, Armenia, Azerbaijan (loan reallocation), Georgia, Latvia topped the global rankings for most reforms enacted. Moldova, the Kyrgyz Republic, and Turkey, and similar opera- Toboosttheinvestmentclimate,theBankishelpinggovern- tions are under development for other countries. These mentsenhanceenterprisecompetitivenessandimprovetheju- operations deal primarily with animal and human health, dicialsystemandotherinstitutionsthatbringdisciplinetokey public awareness and information, monitoring and evaluation, economicsectors.ExamplesincludetheMoldovaCompetitive- and emergency imports. nessEnhancementProjectandtheSerbiaandMontenegroPro- Several innovative projects were launched during fiscal grammaticPrivateandFinancialDevelopmentPolicyCredit.On 2006 in line with the particular technology needs of countries thepolicyside,a2006CountryEconomicMemorandumforTur- poised to join the European Union. They included the Romania keyfocusedonpromotingsustainedgrowthandconvergence Knowledge Economy Project and the Croatia Science and Technology Project. The Romania project will help remote and poorly connected communities participate more actively in the country's knowledge-based society, raise digital literacy, develop e-government services, and support small business innovation. The Croatia initiative aims to improve the ability of research and development institutions to promote applied research and arm businesses with the skills they need to effectively apply technology for commercial uses. Through in-depth studies and advisory activities focused on such crucial issues as employment, trade, poverty and inequality, and the economic cost of HIV/AIDS, the Bank was able to increase knowledge and spark debate on high-priority development topics. At the regional level, three flagship reports were produced in fiscal 2006: Growth, Poverty, and Inequality: Eastern Europe and the Former Soviet Union; Enhancing Job Opportunities: Eastern Europe and the Former Soviet Union; and From Disintegration to Reintegration: Eastern Europe and the Former Soviet Union in International Trade. Other major studies--on regional labor migration, demographic trends, and productivity growth--are under way. The periodic Russian Economic Report and the EU-8 Quarterly Economic Report allow journalists, economists, and policy makers to track macroeconomic trends in key countries. BUILDING THE CLIMATE FOR INVESTMENT Eastern European and Baltic countries are aggressively courting entrepreneurs with far-reaching reforms that streamline business regulations and taxes. According to the REGIONAL PERSPECTIVES 43 FIGURE 2.7 FIGURE 2.8 EUROPEAND CENTRALASIA EUROPEAND CENTRALASIA IBRDAND IDALENDING BYTHEME | FISCAL 2006 IBRDAND IDALENDING BY SECTOR | FISCAL 2006 SHARE OFTOTAL OF $4 BILLION SHARE OFTOTAL OF $4 BILLION Financial & Private Rule of Law 10% 35% Sector Development Industry & Trade 7% 3% Education 9% Finance 6%Trade&Integration Water, Sanitation <1% & Flood Protection Public Sector Environmental & Energy&Mining 28% Agriculture, Fishing 3% & Forestry Governance 15% Natural Resource 4% Management Economic Management <1% Transportation 10% Social Protection& Risk Management 5% 8% Urban Development Social Development, 6% Rural Development Health & Other Law & Justice Gender & Inclusion 2% 9% Human Development Social Services 8% 32% &Public Administration withtheEuropeanUnion.Andbecausebusinessesneedre- supporting a farm insurance fund, and executing a social coursetowell-runcourts,theBankisalsosupportingjudicial inclusion strategy that will help small-scale farmers and reforminArmeniabyupgradingcourthousesandmakingthe their communities. In Albania, people overlooked by the judicialprocessmoreefficientandtransparent. existing health system will become eligible for basic health In Russia, the development of real estate markets is being services. Health care improvements being rolled out across supported through a Bank-assisted Cadastre Project. Along the country, as part of the Health System Modernization with other Bank activities supporting access to land and real Project, will also enable poor people to choose their own estate reforms, the project aims to improve Russia's invest- primary-care doctor. ment climate as well as provide a predictable source of The Bank is supporting nonlending initiatives in the region. income from land taxes for local authorities. Development Marketplace programs encourage civil society organizations to compete for microgrants. A multidonor Roma FOSTERING PARTICIPATION IN DEVELOPMENT Education Fund is boosting school opportunities for Europe's To ensure benefits to a broad section of society and to largest minority. A study of Russian youth in North Caucasus encourage participatory development, Bank operations is shedding light on a segment of the population that faces emphasize improvement of public services and inclusion of high unemployment, social insecurity, and marginalization. vulnerable groups in innovative projects and research And the report Dying Too Young brought the attention of policy initiatives. A Poland Post-Accession Rural Support Project makers to Russia's crisis in mortality and morbidity relative to is targeting underdeveloped villages by helping local other countries at similar income levels. (See www governments implement social protection strategies, .worldbank.org/eca.) BOX 2.3 REVIVING THE NORTHERN ARAL SEA By early 2005, the surface of the Northern Aral Sea had An $85.8 million project for the improvement of waterworks shrunk to half its original size as a result of overirrigation along the Syr Darya River and for construction of the 13- and ecological mismanagement. A dike completed in kilometer-long Kok-Aral dike between the Northern and August helped to partly refill the sea, lifting the hopes of Southern Aral Seas was implemented jointly by the govern- the region's people. The Aral Sea is shared by Kazakhstan ment of Kazakhstan and the Bank, with the Bank providing a and Uzbekistan, but its basin also encompasses loan of $65 million. The Syr Darya Control and Northern Aral Afghanistan, the Kyrgyz Republic, Tajikistan, and Sea Project built and restored waterworks along the river to Turkmenistan. Shrinkage began in the 1960s, when revive opportunities for fishing, farming, and hydroelectric massive diversions of water for cotton cultivation drained power generation. Already, fish stocks are growing and the two rivers that feed into the sea. As a result, by 1996 freshwater bird species are returning to the Northern Aral the volume of the Aral Sea had declined by 75 percent, Sea and surrounding lakes. In addition to spurring an devastating the surrounding environment and ruining the ecological revival, the project helps reduce tensions between traditional fishing economy of the bordering villages. By upstream countries using water for hydropower generation the late 1990s, the Aral Sea had been split into three during the winter and downstream countries drawing on parts, two in the south and one in the north. water for irrigation during the summer. 44 THE WORLD BANK ANNUAL REPORT 2006 TABLE 2.4 WORLDBANKLENDINGTOBORROWERSINEUROPEANDCENTRALASIABY THEME AND SECTOR | FISCAL 2001­2006 MILLIONS OF DOLLARS THEME 2001 2002 2003 2004 2005 2006 Economic Management 127.4 636.1 19.5 242.0 17.4 4.6 Environmental and Natural Resource Management 161.3 157.5 122.7 309.4 394.4 148.8 Financial and Private Sector Development 1,074.0 2,210.8 483.3 950.2 933.9 1,461.1 Human Development 51.1 138.3 550.4 297.1 539.4 360.3 Public Sector Governance 95.6 1,313.7 317.7 895.1 272.3 589.1 Rule of Law 77.4 106.6 289.8 132.3 66.8 401.6 Rural Development 137.6 309.9 194.9 117.4 161.5 238.5 Social Development, Gender, and Inclusion 65.1 188.8 55.9 33.9 246.6 95.1 Social Protection and Risk Management 381.2 363.9 288.5 305.3 668.8 335.9 Trade and Integration 138.4 32.5 130.6 182.6 424.4 226.6 Urban Development 383.9 65.4 216.7 93.6 368.0 183.0 Theme Total 2,693.1 5,523.6 2,670.0 3,559.1 4,093.5 4,044.7 SECTOR Agriculture, Fishing, and Forestry 139.0 470.4 335.4 168.6 107.0 117.9 Education 62.5 83.2 395.0 164.0 263.8 126.7 Energy and Mining 336.6 218.0 262.9 352.2 657.9 1,108.3 Finance 802.3 1,284.9 195.8 836.9 259.1 374.5 Health and Other Social Services 281.9 524.7 415.3 244.3 484.9 339.9 Industry and Trade 296.5 552.1 269.0 126.3 253.5 274.8 Information and Communication 8.7 9.6 1.0 7.0 10.9 0.0 Law and Justice and Public Administration 446.4 2,181.9 698.9 1,176.8 1,160.6 1,271.7 Transportation 118.3 67.1 30.6 321.2 557.9 416.7 Water, Sanitation, and Flood Protection 200.7 131.7 66.3 162.0 337.9 14.2 Sector Total 2,693.1 5,523.6 2,670.0 3,559.1 4,093.5 4,044.7 Of which IBRD 2,154.0 4,894.7 2,089.2 3,012.9 3,588.6 3,531.9 Of which IDA 539.0 628.9 580.8 546.2 504.9 512.8 Note: Includes all adjustment, development policy, and investment loans. Effective fiscal 2005, lending includes guarantees and guarantee facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 45 LATINAMERICAANDTHECARIBBEAN In2006,theLatinAmericaandtheCaribbeanregionbenefited in their future, and effective and accountable government. The fromhigherexportvolumesandrevenuesresultingfrom Bank is tailoring assistance to meet these needs, particularly recordcommoditypricesandhighworldgrowth.Theregion in middle-income countries with high poverty. In Chile, for grewby4.4percentin2005andexpectsagrowthrateof4.6 instance, the Bank has moved from financing a broad range of percentfor2006,afterexperiencingitsstrongestgrowthin25 projects to supporting selected areas of focus (education, years(6percent)in2004.Theregion'smaindevelopment social protection, and innovation) that are part of the country's challengecontinuestobepersistentpovertyandhighinequal- overall strategy to ensure high growth with equity. ity.Inaregionrichinnaturalresourcesandhumancapital, In fiscal 2006, Bank financing for Latin America and the nearlyaquarterofthepopulationlivesonlessthan$2aday. Caribbean reached $5,654.1 million in IBRD lending, The region's political map is being redrawn in 2006: $179.5 million in IDA credits, and $76.9 million in IDA grants. elections in almost one-third of the 30 countries the Bank This financing included a $601.5 million loan to Brazil to serves will affect nearly half of the people living in the region. support microeconomic reforms needed to enhance the The Bank maintains dialogue with all major constituencies country's long-term growth prospects and a $501 million loan and candidates and is working with their respective govern- to Mexico to help strengthen the financial system and reduce ments to help ensure continuous support for the region's poor. the risk of future financial crises. In Argentina, the Bank launched a new country assistance strategy that seeks to WORLD BANK ASSISTANCE build an investment partnership to support sustained eco- The Bank's strategy for the region is to respond to citizens' nomic growth with equity, greater social inclusion, and needs for employment, safe and secure environments for improved governance. The new assistance strategy for the their families, access to education and public services, a voice Organization of Eastern Caribbean States aims to help the six LATIN AMERICA AND THE CARIBBEAN FAST FACTS Total population: 0.6 billion Population growth: 1.4% TOTALFISCAL2006 TOTALFISCAL2006 Life expectancy at birth: 72 years New Commitments Disbursements Infant mortality per 1,000 births: 27 IBRD $5,654.1 million IBRD $5,628 million Female youth literacy: 97% IDA $256.4 million IDA $261 million 2005 GNI per capita: $3,990 Number of people living with HIV/AIDS: 1.9 million PortfolioofprojectsunderimplementationasofJune30,2006:$16.6billion Note: Life expectancy at birth, infant mortality rate per 1,000 live births, and female youth literacy are for 2004; HIV/AIDS data are from the UNAIDS 2006 Report on the Global AIDS Epidemic; other indicators are for 2005 from the World Development Indicators Database. 46 THE WORLD BANK ANNUAL REPORT 2006 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Antigua and Barbuda Colombia Grenada Mexico St. Lucia Venezuela, República Argentina Costa Rica Guatemala Nicaragua St. Vincent and the Bolivariana de Belize Dominica Guyana Panama Grenadines Bolivia Dominican Republic Haiti Paraguay Suriname Brazil Ecuador Honduras Peru Trinidad and Tobago Chile El Salvador Jamaica St. Kitts and Nevis Uruguay member states accelerate growth, improve competitiveness, reduction,andtheregion'sabilitytocompetewithChinaand and reduce vulnerability to external shocks, particularly otherdynamicAsianeconomies.Banksupportforinfrastruc- natural disasters. Interim strategies for Nicaragua and tureinfiscal2006includednewfinancingtoimproveaccessto Panama are supporting these countries' efforts to reduce electricityinruralareasofHondurasandPeruandtoincrease persistent poverty. Bolivia, Guyana, Honduras, and Nicaragua accesstoandreducethecostsoftelecommunicationsservices became eligible for 100 percent debt cancellation under the inruralareasofNicaragua.TwoBank-financedprojectsin Multilateral Debt Relief Initiative in fiscal 2006. (See "Initiating Peruhaverehabilitated13,000kilometersofruralroads, Multilateral Debt Relief" in chapter 1.) reducingtraveltimebyanaverageof68percent.Theroad Anotherregionalpriorityishelpingcountriestackletheissue rehabilitationhasalsoincreasedschoolenrollmentby8per- oflowpublictrustininstitutionsresultingfromperceived centandvisitstohealthcentersby55percent. corruptionandinefficiency.Forexample,inPeru,theBankis A report by the Bank on the Central America­Dominican helpingtomodernizethejusticesystemandmakeitmore Republic­United States Free Trade Agreement found that it accessibletoindigenouspeopleandthepoor.InGuatemala,the has the potential to increase trade and investment, thus Bankhasassistedinsettingupagovernmente-procurement boosting economic growth and poverty reduction in Central systemthathasincreasedtransparencyandcompetitionamong America. The report advises countries to undertake comple- vendors,therebyimprovingefficiencyandreducingcosts. mentary investments and reforms to realize benefits for all. The Bank's latest major report on the region, Poverty Its findings informed parliamentary discussions in all coun- Reduction and Growth: Virtuous and Vicious Circles, examines tries party to the agreement. the ways poverty hampers achievement of high and sustained growth rates in Latin America and the Caribbean. The report recommends packages of policies to convert vicious circles of low growth and high poverty into virtuous circles in which poverty reduction and high growth reinforce each other. BUILDING THE CLIMATE FOR INVESTMENT The Bank is helping governments throughout the region improve the investment climate. For example, a $300 million loan to Mexico is helping small businesses participate in the formal market and improve competitiveness. A $250 million loan to Colombia is facilitating the creation and operation of businesses and improving access to finance. Perhaps most important, the Bank is helping governments address their development priorities through a series of development loans. These loans are intended to boost growth, reduce poverty, improve social indicators, reinforce macroeconomic stability, and increase the efficiency of the public sector. For example, El Salvador and Guatemala have received loans of $100 million, each under this program. AccordingtotheBankreportInfrastructureinLatinAmerica andtheCaribbean:RecentDevelopmentsandKeyChallenges, theregionhasexperiencedasharpdeclineininvestmentin infrastructure,whichishinderingeconomicgrowth,poverty REGIONAL PERSPECTIVES 47 FIGURE 2.9 FIGURE 2.10 LATINAMERICAANDTHE CARIBBEAN LATINAMERICAANDTHE CARIBBEAN IBRDAND IDALENDING BYTHEME | FISCAL 2006 IBRDAND IDALENDING BY SECTOR | FISCAL 2006 SHARE OFTOTAL OF $5.9 BILLION SHARE OFTOTAL OF $5.9 BILLION Financial & Private Rule of Law 2% 25% Sector Development Industry & Trade 10% 12% Education Energy&Mining 3% Public Sector Governance 18% Transportation 13% 15% Finance Economic 12% Trade&Integration Management 1% Social Protection& Environmental& Water, Sanitation Risk Management 10% NaturalResource Health & Other 6% &Flood Protection Social Development, 8% Management Social Services 14% Agriculture, Fishing Gender & Inclusion 5% 5% & Forestry 6% Urban Development Information & Law & Justice Human Development 9% 4% Rural Development Communication <1% 22% &Public Administration FOSTERING PARTICIPATION IN DEVELOPMENT OtherinnovativeprojectsincludeBolsaFamilia(Family With equity, inclusion, and sustainability as its goals, the Grant)inBrazilandbasiceducationdevelopmentinMexico.To Bank is promoting efforts across the region to improve date,theBankhasprovided$572millionfortheBolsaFamilia governance, stakeholder and beneficiary participation in program,theflagshipofsocialpolicyinBrazilandthelargest projects, and access to and the quality of service delivery. conditionalcashtransferprogramintheworld.BolsaFamilia The Bank also supports efforts to achieve an inclusive but combinesfourexistingsocialprogramsintoonetoreducepov- affordable welfare system and promote effective natural ertythroughtransfersandtopromotedeliveryofeducationand resource use and environmental institutions. Major financ- healthservicestothepoorestfamilies(seebox2.4).TheBank ing to the region in fiscal 2006 included loans for social hassofarprovided$715millionforaprogramthatstrength- protection and rural education improvement in Argentina; enedMexico'scompensatoryeducationprogram(CONAFE).The human development and social inclusion in Brazil; and programhasimprovedprimaryschoolmathlearningandsec- school-based management, affordable housing, and urban ondaryschoolSpanishlearningandloweredgraderepetition poverty reduction in Mexico. andfailurerates.(Seewww.worldbank.org/lac.) BOX 2.4 CONDITIONAL CASH TRANSFER PROGRAMS Latin American and Caribbean governments are adopting families living in the 100 poorest municipalities. The Bank conditional cash transfer programs to break the cycle of also supported expansion of Colombia's Familias en Acción poverty. The programs provide cash to poor families on the (Families in Action) from 340,000 to 400,000 families by condition that they make verifiable investments in human including extremely poor families in marginalized urban capital, such as regular school attendance or the use of areas and zones affected by violence. basic health care services. The impact of cash transfers on poverty goes beyond the increased incomes for poor Impact evaluations confirm these programs' success in households provided by straight transfer policies. The reaching the poor and improving consumption, education, programs also relieve credit constraints and encourage the and health, especially in middle- and upper-middle-income accumulation of human capital that raises household countries where high inequality dampens the poverty incomes and promotes long-term income growth through- reduction effects of economic growth. In Colombia, for out the economy. example, beneficiaries increased average consumption by 15 percentage points more than control households, and The Bank has supported conditional cash transfer programs children under age two grew taller by up to 0.78 centimeters. since the late 1990s in Brazil, Colombia, the Dominican In Ecuador, secondary enrollment grew by 10 percentage Republic, Ecuador, El Salvador, Jamaica, and Nicaragua (the points between 2003 and 2005, and child labor fell 17 points last, a pilot project). In 2005, the Bank approved financing for among beneficiary families of the Bono de Desarrollo El Salvador's innovative Red Solidaria a la Familia (Family Humano (Human Development Transfer) conditional cash Solidarity Network), which will benefit disadvantaged transfer program. 48 THE WORLD BANK ANNUAL REPORT 2006 TABLE 2.5 WORLDBANKLENDINGTOBORROWERSINLATINAMERICAANDTHECARIBBEANBY THEME AND SECTOR | FISCAL 2001­2006 MILLIONS OF DOLLARS THEME 2001 2002 2003 2004 2005 2006 Economic Management 570.1 391.0 567.2 111.2 310.4 42.5 Environmental and Natural Resource Management 68.8 187.4 240.3 159.1 841.2 454.0 Financial and Private Sector Development 985.4 965.4 819.8 912.4 729.6 1,518.7 Human Development 471.2 560.4 1,171.7 1,046.7 469.8 502.6 Public Sector Governance 1,099.7 1,182.8 798.6 672.0 506.2 1,054.2 Rule of Law 202.2 15.5 138.8 270.9 147.9 108.8 Rural Development 580.8 168.3 415.9 249.6 331.8 236.5 Social Development, Gender, and Inclusion 371.7 248.9 123.1 268.9 187.9 282.6 Social Protection and Risk Management 530.0 310.4 1,050.3 926.9 950.4 606.2 Trade and Integration 218.3 83.9 59.6 364.6 233.4 720.3 Urban Development 202.0 251.9 435.2 337.6 457.1 384.1 Theme Total 5,300.1 4,365.8 5,820.5 5,319.8 5,165.7 5,910.5 SECTOR Agriculture, Fishing, and Forestry 72.3 85.0 58.4 379.6 233.4 291.0 Education 529.1 560.4 785.5 218.3 680.0 712.7 Energy and Mining 107.6 445.6 96.2 50.5 212.6 172.8 Finance 946.7 593.5 973.0 405.1 530.0 907.3 Health and Other Social Services 904.7 660.5 1,574.1 1,558.9 443.4 821.8 Industry and Trade 38.3 51.4 183.4 428.0 199.9 569.2 Information and Communication 97.8 16.5 52.4 14.0 44.7 20.8 Law and Justice and Public Administration 1,726.7 1,440.0 1,564.9 1,521.3 1,776.0 1,278.8 Transportation 650.3 463.1 146.4 675.7 556.4 785.4 Water, Sanitation, and Flood Protection 226.6 49.8 386.2 68.4 489.5 350.7 Sector Total 5,300.1 4,365.8 5,820.5 5,319.8 5,165.7 5,910.5 Of which IBRD 4,806.7 4,188.1 5,667.8 4,981.6 4,904.4 5,654.1 Of which IDA 493.4 177.8 152.7 338.2 261.3 256.4 Note: Includes all adjustment, development policy, and investment loans. Effective fiscal 2005, lending includes guarantees and guarantee facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 49 MIDDLEEASTANDNORTHAFRICA From2003to2005,economicgrowthintheMiddleEastand moving forward on reforms, from private sector development NorthAfrica(excludingIraq)wasthestrongestinnearlythree and privatization in Kuwait to innovative and participatory decades,averaging6.2percentayear,upfromanaverage urban development programs in Saudi Arabia. Qatar is annualgrowthrateof3.7percentduringthe1990s.Countries implementing a labor market strategy and a program on the haveusedtheopportunitiespresentedbythiswaveofeco- knowledge economy. However, employment creation for the nomicgrowthtopressaheadwithreforms.Thenewgovern- region's youth remains a central challenge to bridging the gap mentintheArabRepublicofEgyptisengagedinarangeof between resource-rich economies and those less endowed. reformsaffectingthefinancialsector,theinvestmentclimate, Job creation continues to be the region's major develop- socialprotection,education,andurbanrenewal.Jordan's ment challenge. Forecast growth rates, expected to ease to reformsineducationandtheinvestmentclimatecontinue 5.2 percent in 2007 and 2008, remain insufficient to fully apace.Moroccoispushingforwarditsgovernanceagendaand address the employment challenges in the region. Close to tradereforms.Tunisiaismakingprogressonitstradeagenda 100 million new jobs, double the current number, will need to andintelecommunicationsreform. be created over the next 20 years to keep pace with new labor The Republic of Yemen's new country assistance strategy force entrants and absorb those currently unemployed. The foresees a new commitment to improved governance, better current reformist momentum makes it more likely that use of water resources, and economic diversification, while regional economies will be able to build competitive and Lebanon's new government is building the foundation for diversified private sector­led economies that will generate the improved transparency and accountability and is laying the growth rates needed to meet the region's needs. groundwork for sustainable economic growth. The Gulf Otherchallengesincludetradereform,sincetheregion Cooperation Council countries--buoyed by high oil prices--are remainsbehindmostothermiddle-incomeregions,withhigh MIDDLE EAST AND NORTH AFRICA FAST FACTS Total population: 0.3 billion Population growth: 1.8% TOTALFISCAL2006 TOTALFISCAL2006 Life expectancy at birth: 69 years New Commitments Disbursements Infant mortality per 1,000 births: 44 IBRD $1,333.6 million IBRD $811 million Female youth literacy: 81% IDA $367 million IDA $216 million 2005 GNI per capita: $2,240 Number of people living with HIV/AIDS: 0.4 million Portfolio of projects under implementation as of June 30, 2006: $6.6 billion Note: Life expectancy at birth, infant mortality rate per 1,000 live births, and female youth literacy are for 2004; HIV/AIDS data are from the UNAIDS 2006 Report on the Global AIDS Epidemic; other indicators are for 2005 from the World Development Indicators Database. 50 THE WORLD BANK ANNUAL REPORT 2006 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING This section also reports on the West Bank and Gaza. Algeria Egypt, Arab Republic of Iraq Lebanon Syrian Arab Republic Yemen, Republic of Djibouti Iran, Islamic Republic of Jordan Morocco Tunisia tariffsinmanycountriesandthecontinuinguseofnontariff Egypt and in the West Bank and Gaza is focused on taking barriersinsome.Theregionhasachievedmoreprogressin stock of educational achievements and preparing a strategy reformingthebusinessenvironment,butitstillremainsbelow for the next phase of education reforms. theaverageformiddle-incomecountries.Amajorconcernis Inconflict-affectedcountries,theBankisaddressingemer- theslowpaceofregionalprogressinimprovinggovernance. gencyreconstructionandcapacity-buildingissues.Inadditionto Theregion'srankingsonthequalityofadministrationare theeducationloaninIraq,theBankisfinancinga$135million generallyconsistentwithglobaltrends,althoughonaverage, EmergencyRoadsRehabilitationProjectandmanagingthe theregionranksinthebottomfifthofcountriesworldwideon multidonorWorldBankIraqTrustFund.IntheWestBankand publicsectoraccountability.Thelackofrapidreformin Gaza,theBankisfinancingprojectsforwaterandsanitation, implementinginclusivenessandaccountabilityinseveral communitydevelopment,socialsafetynets,landadministration, countriesisofsomesignificancegiventheimplicationsforthe andeducation.ItisalsomanagingthePublicFinancialManage- successofbroadereconomicreformeffortsacrosstheregion. mentReformTrustFund,amultidonorbudgetsupportinstru- mentthroughwhich$96millionwasdisbursedinfiscal2006 WORLD BANK ASSISTANCE againstprogressinthePalestinianAuthority'sreformprogram. Financingduringfiscal2006reached$1.7billion,including TheBankisalsoaleadingagencyforeconomicandpolicy $1.3billioninIBRDloansand$307millioninIDAcredits;$17.2 analysisintheWestBankandGaza.Attherequestofdonors, millionwasfinancedthroughtheIraqTrustFund.TheBank tworeportshavebeenpreparedonthePalestinianeconomyand delivered44piecesofeconomicandsectorworkandcom- itsprospectsforrecovery.(Seewww.worldbank.org/ps.) pleted39technicalassistanceassignments.Assistanceis Analytic and advisory services have become a major tool directedatsupportingreformsandinvestmentsacrossawide for policy dialogue and reform in response to growing client rangeofsectors.Inresponsetothethreatofavianflu,rapid demand. A programmatic economic and sector work ap- preparednessassessmentswerecompletedinseveralofthe proach was introduced to engage partners across the region region'scountriestoidentifyimmediateandlong-termgapsin in a sustained, multiyear program, and technical assistance institutionalcapacities. and training were tailored to the capacity-building needs of Education remains an important focus for Bank activities in the Bank's partners. There are six ongoing activities. the region. In November 2005, the Bank approved its first loan To strengthen the impact of its analytical work, the Bank to Iraq in 30 years: a $100 million IDA-financed Third Emer- has boosted staff capacity and improved cooperation with gency Education Project to help alleviate school overcrowding donors, other international organizations, and Bank Group and promote educational reform. In Djibouti, a $10 million IDA partners on fiduciary issues and promotion of foreign financing arrangement increases equitable access to better investment. A series of regional flagship reports was also quality education, especially for girls and underserved groups. launched. The first reports were devoted to governance, In Tunisia, the Bank is helping the government increase ac- trade and investment, employment, and gender; the latest cess to and improve the quality of higher education through a reports are on education and water. In the wake of the $76 million loan. In the West Bank and Gaza, the Bank is pro- governance report, the Bank prepared a 10-point strategy viding advice on the creation of a comprehensive education for expanding and strengthening its work on governance and development plan and is analyzing the efficiency and equity of public sector management. It envisions progress along a public resource use in education. In Egypt, the Bank sup- range of dimensions, from improving the treatment of ported the decentralization of the education system through governance in country assistance strategies; to developing the establishment of boards of trustees that include parents better coordination, oversight, and dialogue with clients in and community leaders. Projects and sector work in Egypt high-risk environments; to strengthening regional analytic and Jordan have supported the introduction of early childhood work on comparative public sector reforms and governance development interventions. Finally, ongoing sector work in performance indicators. REGIONAL PERSPECTIVES 51 FIGURE 2.11 FIGURE 2.12 MIDDLE EASTAND NORTHAFRICA MIDDLE EASTAND NORTHAFRICA IBRDAND IDALENDING BYTHEME | FISCAL 2006 IBRDAND IDALENDING BY SECTOR | FISCAL 2006 SHARE OFTOTAL OF $1.7 BILLION SHARE OFTOTAL OF $1.7 BILLION Financial & Private Rule of Law 3% 53% Sector Development 9% Education Industry & Trade 1% 36% Finance Environmental& Energy&Mining 18% NaturalResource Water, Sanitation Public Sector 3% Management 6%&Flood Protection Governance 13% 2% Urban Development Agriculture, Fishing Social Protection& 1% & Forestry Risk Management 4% 10% Rural Development Social Development, Law & Justice Gender & Inclusion 4% 8% Human Development Transportation 14% 15% &Public Administration ment climate assessments in Lebanon, Saudi Arabia, and the Republic of Yemen. The Bank also produced public expenditure reviews in Egypt, the Islamic Republic of Iran, and the Syrian Arab Republic to encourage sound financial management and good corporate governance. It provided technical assistance for reforms such as reducing the cost of doing business in Algeria and Morocco; strengthening trade facilitation in Lebanon, Tunisia, and the West Bank and Gaza; and developing export markets in Saudi Arabia. In Morocco, a $200 million financial sector development policy loan was provided to strengthen the enabling environment for financial intermediation and risk manage- ment. The Bank is also supporting Egypt's financial sector reform program. Improving infrastructure services is essential for improving the investment climate. The Bank has demonstrated several models for public-private partnerships in this regard through Knowledge sharing has been at the core of the Bank's support to the transport and power sectors in Djibouti, Egypt, development assistance to high-income Gulf countries. The Morocco, and the Republic of Yemen; rural road development Bank continues to provide technical and advisory services on in Morocco; and water services quality and reliability in demand through the Reimbursable Technical Assistance Morocco and Tunisia. It is providing fee-based technical Program. In Saudi Arabia, the Bank provides policy advice in assistance to develop Algeria's water resources. The Bank several sectors. In Kuwait, assistance has been provided to has also worked with the Tunisian government to develop a the Education Indicators and Assessment Program, and in public-private partnership strategy for the development and Bahrain, the Bank's policy advice was requested to develop management of infrastructure services. social safety nets and redefine the Bahrain Stock Exchange as a Gulf financial center. FOSTERING PARTICIPATION IN DEVELOPMENT Inthesocialsectors,theBankpublishedaregionalreview, Recognizing the diversity of social groups and opinions and PensionsintheMiddleEastandNorthAfrica:TimeforChange, the growing momentum of reform throughout the region, the tohighlighttheurgentneedforpensionreform.Analyticand Bank opened dialogue with parliamentarians, youth, women, advisoryactivitieswereundertakenintheIslamicRepublicof the private sector, and the media. In Egypt, Lebanon, and IranandEgyptforpensionreformandinAlgeriaforsocial Morocco, these groups participated in country assistance insurance.Aregionalstrategytohelppreventamajorsurgein strategy consultations. Regionwide, the Bank engaged such HIV/AIDSinfectionswasalsolaunched.Althoughtheregion's groups in debates on trade reforms, governance, the rule of levelofinfectionisrelativelylow(anestimated0.2percentof law, and gender issues. The Bank also worked to empower adults),riskofinfectioncannotbeunderestimated. youth to participate in development through organization of the Small Grants Workshop for youth groups in Egypt and the BUILDING THE CLIMATE FOR INVESTMENT Republic of Yemen and through World Development Report The Bank helped strengthen the framework for private 2007 consultations with more than 150 young Egyptians. (See sector­led growth through analytic work such as invest- www.worldbank.org/mna.) 52 THE WORLD BANK ANNUAL REPORT 2006 TABLE 2.6 WORLDBANKLENDINGTOBORROWERSINMIDDLEEASTANDNORTHAFRICABY THEME AND SECTOR | FISCAL 2001­2006 MILLIONS OF DOLLARS THEME 2001 2002 2003 2004 2005 2006 Economic Management 11.9 5.0 0.0 0.0 45.8 0.0 Environmental and Natural Resource Management 27.5 21.7 186.0 113.8 160.2 44.5 Financial and Private Sector Development 78.8 204.1 48.3 259.3 166.6 907.8 Human Development 35.7 61.9 140.9 192.1 95.4 128.5 Public Sector Governance 102.6 93.3 106.6 19.6 166.0 229.0 Rule of Law 56.5 49.1 48.0 1.8 1.8 46.9 Rural Development 86.4 14.5 100.6 65.1 155.3 177.9 Social Development, Gender, and Inclusion 52.5 13.4 63.1 70.7 123.0 67.8 Social Protection and Risk Management 5.6 11.0 96.1 31.6 98.5 69.7 Trade and Integration 3.4 24.8 3.6 158.3 0.0 0.0 Urban Development 46.7 55.8 262.7 178.7 271.1 28.6 Theme Total 507.5 554.5 1,056.0 1,091.0 1,283.6 1,700.6 SECTOR Agriculture, Fishing, and Forestry 46.5 2.9 196.7 27.2 229.2 15.3 Education 72.3 38.0 154.3 154.9 124.0 146.8 Energy and Mining 0.0 1.3 0.0 0.0 0.0 316.5 Finance 0.0 110.5 1.9 20.8 142.5 625.0 Health and Other Social Services 39.3 41.7 124.2 52.0 0.3 0.0 Industry and Trade 27.0 71.7 74.3 23.4 277.9 14.0 Information and Communication 59.2 69.9 2.3 0.0 18.5 0.0 Law and Justice and Public Administration 161.5 74.7 213.6 93.6 232.9 249.2 Transportation 82.8 70.9 107.9 409.6 29.0 237.6 Water, Sanitation, and Flood Protection 19.0 73.1 180.9 309.5 229.3 96.4 Sector Total 507.5 554.5 1,056.0 1,091.0 1,283.6 1,700.6 Of which IBRD 355.2 451.8 855.6 946.0 1,212.1 1,333.6 Of which IDA 152.3 102.7 200.4 145.0 71.5 367.0 Note: Includes all adjustment, development policy, and investment loans. Effective fiscal 2005, lending includes guarantees and guarantee facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 53 3 SUMMARYOFFISCALYEARACTIVITIES SHARINGKNOWLEDGE produce joint analytic work in partnership with them. The The Bank assists client countries not only by funding projects Bank delivered 601 economic and sector work products and and programs but also by providing access to its development 307 technical assistance activities in fiscal 2006. Financial and knowledge resources. The Bank's knowledge activities range private sector development and public sector governance from conducting country research, to developing analytic and were the leading themes for both economic and sector work conceptual frameworks for country assistance, to building the and technical assistance. capacity for sustainable development within client countries. SectorStrategies Research In fiscal 2006, the Bank produced the second Sector Strategy The Bank's research program supports studies on the implica- Implementation Update, which provides an integrated tions of a range of development issues. The resultant findings assessment of progress across all sectors and thematic areas facilitate a deeper understanding of development challenges in which the Bank is engaged. This update also focused on and can be used to influence policy, thereby leading to better strategies in four specific sectors: water supply and sanita- outcomes for poor people. For example, a Bank survey tion, health, rural development, and public sector governance. revealing the extent of absenteeism among teachers and The Bank's efforts also concentrated on implementing the health workers in Bangladesh, Ecuador, India, Indonesia, HIV/AIDS action plan and the multisectoral Africa Action Plan, Uganda, and Zambia led to vigorous government campaigns in and two newly updated strategies in the social development India to ensure that teachers and health service providers and education sectors. report to work, and to the inclusion of "citizen report cards" on health and education services in Africa as part of the Bank's CAPACITYDEVELOPMENT development assistance strategies in that region. For development programs to be effective and sustainable, Environmental research has led to significant pollution country partners must have the capacity to manage them. The reductions by industrial plants in Asia. Armed with evidence Bank supports upgrading the skills of its partners through the that public disclosure of factory emissions increases public World Bank Institute (WBI) and specific capacity-building pressure to reduce those emissions, the Bank supported projects. trials in China, India, Indonesia, and Vietnam in which polluters' emissions were monitored and performance WorldBankInstitute ratings disclosed. In all four countries, rates of compliance The World Bank Institute identifies countries' capacity needs with pollution regulations in test areas increased by 10 to and provides capacity development services that include 50 percent. technical assistance, thematic learning activities, cabinet-level retreats, and other leadership development programs. In fiscal EconomicandSectorWorkandNonlending 2006, nearly 100,000 people took part in WBI training and TechnicalAssistance capacity-building activities. Most of the Bank's analytic and advisory activities consist of WBI supports long-term capacity development in 45 focus economic and sector work and nonlending technical assist- countries through multiyear programs. Fourteen of these ance. Analytic and advisory activities are an integral part of countries are in Africa, where WBI will play a key role in the overall country assistance programs, which increasingly Bank's Africa Action Plan (see chapter 1). WBI's Global emphasize country ownership, participatory processes, Governance Program supports the Bank's governance and capacity building, partnerships, and results. For that reason, anticorruption agenda by conducting empirical research and the Bank has sought to strengthen its capacity to share publishing worldwide indicators of the prevalence and knowledge with the donor community, looking to harmonize socioeconomic impact of corruption in more than 200 coun- its policies and procedures with those of other donors and tries and territories (see chapter 1). It also works with the SUMMARY OF FISCAL YEAR ACTIVITIES 55 FIGURE 3.1 media, legislatures, and civil society to support public TOTALIBRD-IDALENDINGBYREGION | FISCAL 2006 demand for good governance. In fiscal 2006, the program SHARE OFTOTAL LENDING OF $23.6 BILLION worked with more than 30 countries. (See www.worldbank South Asia 16% 20% Africa .org/wbi/governance.) GlobalDevelopmentLearningNetwork Middle East & The urgency of connecting people with knowledge for devel- North Africa 7% opment led the World Bank to initiate the Global Development Learning Network (GDLN) with 11 Affiliates in June 2000. 14% East Asia & Pacific Initially conceived as a one-directional learning channel, GDLN today is a community dedicated to just-in-time knowl- edge exchanges that use interactive videoconferencing and Latin America & e-learning techniques through more than 100 Affiliates the Caribbean 25% 17% Europe & Central Asia worldwide. Three-quarters of GDLN clients are government agencies, civil society organizations, and donor institutions. In fiscal 2006, GDLN Affiliates hosted more than 900 activities on behalf of their clients, providing expert facilitation, event coordination, and technology services. FIGURE 3.2 TOTALIBRD-IDALENDINGBYTHEME | FISCAL 2006 InitiativestoImproveStatisticalCapacity SHARE OFTOTAL LENDING OF $23.6 BILLION To develop programs targeting specific development results, Financial & Private reliable and timely statistics are needed. However, many Rule of Law 3% 26% Sector Development national statistical systems are underfunded and unable to produce basic indicators. In fiscal 2005, the Bank introduced a Public Sector new lending program, STATCAP, which simplifies the process Governance 16% 7% Trade & Integration of investing in statistical systems so that project quality can Environmental & Economic Natural Resource ultimately be improved. STATCAP complements the Trust Management 1% 6% Management Fund for Statistical Capacity Building. Social Protection& Risk Management 8% 8% Urban Development The Bank is also supporting a new global partnership through the Development Grant Facility. This partnership 9% Rural Development aims to implement the Marrakech Action Plan for Statistics, Social Development, Gender & Inclusion 5% 11% Human Development which was agreed to at the Second Roundtable on Managing for Development Results. The action plan helps countries develop and implement national strategies for improving official statistics, and it better supports the efforts of interna- tional statistical agencies working in priority areas such as population censuses, education statistics, and household surveys. (See www.worldbank.org/data/statcap.) FIGURE 3.3 TOTALIBRD-IDALENDINGBYSECTOR | FISCAL 2006 SHARE OFTOTAL LENDING OF $23.6 BILLION WORLDBANKLENDING Industry & Trade 7% 8% Education The World Bank comprises cooperative institutions that mobilize financing from member shareholder equity by 10% Finance borrowing from international capital markets (for IBRD) and Energy&Mining 13% Water, Sanitation by means of outright contributions from the richer member 7% &Flood Protection countries (for IDA). It channels these resources to benefit Agriculture, Fishing poor people in borrowing countries. Figures 3.1­3.3 and table Transportation 14% 7% & Forestry 3.1 provide a summary of this year's IBRD-IDA lending. Health & Other CountryLending Social Services 9% Country lending reflects the Bank's focus on achieving the Information & Law & Justice Communication <1% 25% & Public Administration Millennium Development Goals (MDGs). It is tailored to meet 56 THE WORLD BANK ANNUAL REPORT 2006 TABLE 3.1 WORLDBANKLENDINGBYTHEMEANDSECTOR | FISCAL 2001­2006 MILLIONS OF DOLLARS THEME 2001 2002a 2003 2004 2005 2006 Economic Management 895.3 1,408.0 777.8 428.6 594.6 213.8 Environmental and Natural Resource Management 1,354.6 924.0 1,102.6 1,304.6 2,493.8 1,387.3 Financial and Private Sector Development 3,940.9 5,055.4 2,882.9 4,176.6 3,862.0 6,137.8 Human Development 1,134.7 1,756.1 3,374.0 3,079.5 2,951.0 2,600.1 Public Sector Governance 2,053.7 4,247.2 2,464.1 3,373.9 2,636.4 3,820.9 Rule of Law 410.0 273.2 530.9 503.4 303.8 757.6 Rural Development 1,822.3 1,600.0 1,910.9 1,507.8 2,802.2 2,215.8 Social Development, Gender, and Inclusion 1,469.7 1,385.7 1,003.1 1,557.8 1,285.8 1,094.1 Social Protection and Risk Management 1,651.0 1,086.4 2,324.5 1,577.0 2,437.6 1,891.7 Trade and Integration 1,059.9 300.9 566.3 1,212.7 1,079.9 1,610.9 Urban Development 1,458.6 1,482.4 1,576.3 1,358.1 1,860.0 1,911.2 Theme Total 17,250.6 19,519.4 18,513.2 20,079.9 22,307.0 23,641.2 SECTOR Agriculture, Fishing, and Forestry 695.5 1,247.9 1,213.2 1,386.1 1,933.6 1,751.9 Education 1,094.7 1,384.6 2,348.7 1,684.5 1,951.1 1,990.6 Energy and Mining 1,530.7 1,974.6 1,088.4 966.5 1,822.7 3,030.3 Finance 2,246.3 2,710.8 1,446.3 1,808.9 1,675.1 2,319.7 Health and Other Social Services 2,521.2 2,366.1 3,442.6 2,997.1 2,216.4 2,132.3 Industry and Trade 718.3 1,394.5 796.7 797.9 1,629.4 1,542.2 Information and Communication 216.9 153.2 115.3 90.9 190.9 81.0 Law and Justice and Public Administration 3,850.2 5,351.2 3,956.5 4,978.6 5,569.3 5,857.6 Transportation 3,105.2 2,390.5 2,727.3 3,777.8 3,138.2 3,214.6 Water, Sanitation, and Flood Protection 1,271.7 546.0 1,378.3 1,591.6 2,180.2 1,721.0 Sector Total 17,250.6 19,519.4 18,513.2 20,079.9 22,307.0 23,641.2 Of which IBRD 10,487.0 11,451.8 11,230.7 11,045.4 13,611.0 14,135.0 Of which IDA 6,763.6 8,067.6 7,282.5 9,034.4 8,696.1 9,506.2 Note: Includes all adjustment, development policy, and investment loans. Effective fiscal 2005, lending includes guarantees and guarantee facilities. Numbers may not add to totals due to rounding. a. Due to a recoding of a Lao People's Democratic Republic project, there is a discrepancy between these figures and the figures in the 2002 Annual Report (table 2.2). This discrepancy of $2.2 million shows up in the commitment amounts in fiscal 2002 for Social Protection and Risk Management and Rural Development (with the two themes showing $2.2 million higher and $2.2 million lower, respectively). SUMMARY OF FISCAL YEAR ACTIVITIES 57 individual country needs and uses lending instruments that the focus on setting clear goals that are linked to public are becoming increasingly flexible. The Bank has eased actions, improving budget and monitoring systems, opening access to country lending information for country partners space for discussion of national priorities and policies that by developing a Web site that compiles all country lending will lead to poverty reduction and growth, filling country- data into a user-friendly format. More than 5,000 individuals specific analytic gaps, and aligning and harmonizing donor working for member governments and project-implementing assistance with national priorities. (See www.worldbank.org entities (representing more than 75 percent of current Bank /prspreview.) lending operations) are accessing information from and conducting business with the World Bank through the site. This TheRoleofIDA secure site, launched with 10 pilot countries in 2003 and IDA is the largest source of concessional financial assistance opened to all countries in 2004, offers current data on projects, for the world's poorest countries. In fiscal 2006, countries loans, and trust funds and allows users to transmit procure- with annual per capita income of up to $965 were eligible for ment documents to the Bank for review. (See clientconnection IDA assistance. IDA also supports some countries, including .worldbank.org.) several small island economies, that are above the income cutoff but lack sufficient creditworthiness to borrow from CountryAssistanceStrategies IBRD. The amount of IDA resources a country receives A country assistance strategy (CAS) guides World Bank Group depends largely on performance factors such as the quality of activities within a borrowing member country. Starting with a governance and of policies to promote growth and reduce country's vision of its development goals, a CAS is prepared in poverty, which are assessed annually. consultation with the government, civil society organizations, IDA recipient countries face complex challenges in meeting development partners, and other stakeholders. It assesses the MDGs. Policy priorities include promoting growth and the country's development situation and suggests a program reducing poverty; enhancing public sector governance and of support tailored to meet the country's needs. The objective transparency; helping countries recover from conflicts; is to identify areas in which Bank Group support can best developing infrastructure; improving the quality of basic assist the country's own efforts to achieve sustainable education and poor people's access to it; strengthening the development and reduce poverty. During fiscal 2006, the Bank fight against HIV/AIDS, avian flu, and other communicable prepared 31 CAS products, including 7 CAS Progress Reports diseases; building a healthy investment climate as a prereq- and 6 interim strategy notes, which are prepared when a uisite for private sector investment; and increasing access to country assistance strategy cannot be completed because of financing. specific country circumstances. Of these, 17 were prepared Traditionally, IDA provided assistance in the form of highly jointly with IFC, and two (Bangladesh and Uganda) were concessional credits. Since fiscal 2003, it has expanded the prepared collaboratively with other donors. (See www use of grants, and with the 14th Replenishment of IDA .worldbank.org/cas.) (IDA14), it began to use them to finance projects in the most debt-vulnerable IDA countries. (See "IDA Resources" and LOW-INCOMECOUNTRIES www.worldbank.org/ida.) The poverty reduction strategy (PRS) approach is key to the Bank's support for low-income countries. PRSs are country- IDACommitments authored, results-oriented, comprehensive road maps that Fiscal 2006 marked the first year of IDA14 and the highest articulate a country's development priorities and then specify volume of IDA commitments in history. Commitments the steps necessary to address them. The PRS approach reached $9.5 billion for 167 operations, consisting of $7.6 redefined aid by empowering governments to set their own billion in credits, $1.8 billion in grants, and $60 million in priorities (and holding them accountable for the results) and guarantees. The largest share went to Africa, with $4.7 billion, encouraging donors to provide predictable, harmonized constituting 50 percent of total IDA commitments. South Asia assistance aligned with those priorities. Currently 50 coun- and East Asia and Pacific followed with $2.6 billion and $1.1 tries, of which half are in Africa, have prepared a Poverty billion, respectively. Among countries, Pakistan represents Reduction Strategy Paper. the largest single recipient. In fiscal 2006, about 19 percent of The 2005 PRS review examined implementation experience total IDA financing was provided in the form of grants. over the past five years. While experiences have been varied, Public administration, including law and justice, was the the need to implement challenging development agendas in leading sector receiving IDA support, with $2.8 billion, or 28 environments with little capacity and weak institutions is percent of the total. The transportation and health and social common. In many countries, the PRS approach has increased services sectors received significant support: $1.1 billion and 58 THE WORLD BANK ANNUAL REPORT 2006 $1 billion, respectively. The two most prominent themes were FIGURE 3.4 public sector governance and financial and private sector TOTALIDACOMMITMENTSBYREGION | FISCAL 2006 SHARE OFTOTAL LENDING OF $9.5 BILLION development, accounting for 19 percent of IDA commitments each. Human development (15 percent), rural development South Asia 27% 50% Africa (14 percent), and social protection and risk management (9 percent) also attracted major attention. Figures 3.4­3.6 show IDA lending by region, theme, and sector. Also see figure 3.7. Middle East & IDAResources North Africa 4% IDA is financed by its own resources and by donor govern- Latin America & ments (see figure 3.8). Every three years, IDA donor govern- the Caribbean 3% ments and representatives of borrower countries meet to Europe & Central Asia 5% 11% East Asia & Pacific discuss IDA's policies and priorities and to agree on the amount of new resources required to fund IDA's lending program for the following three years. Historically, the major industrial nations have been the largest contributors to IDA. Donor nations also include developing and transition coun- tries--some of them current IBRD borrowers and former IDA FIGURE 3.5 borrowers. TOTALIDACOMMITMENTSBYTHEME | FISCAL 2006 Fiscal 2006 was the first year of IDA14, which will fund SHARE OFTOTAL LENDING OF $9.5 BILLION commitments for fiscal years 2006 through 2008. During Financial & Private this three-year period, concessional financing commit- Rule of Law 3% 19% Sector Development ments of special drawing rights (SDR) 21.9 billion (about 6% Trade & Integration $32 billion) will be made to IDA-eligible countries. This Public Sector Environmental& amount includes SDR 12.1 billion (about $17.7 billion) in Governance Natural Resource 19% 4% Management new donor contributions; SDR 8.7 billion (about $12.7 Economic 4% Urban Development billion) in internal resources, including repayments of Management 1% principal from past credits and investment income; and Social Protection& 14%Rural Development SDR 1.1 billion (about $1.5 billion) in IBRD net income Risk Management 9% transfers, subject to annual approval by IBRD's Board of Governors. Under the Multilateral Debt Relief Initiative Social Development, Gender & Inclusion 8% 15% Human Development (MDRI), donors have committed to providing additional resources in the amount of SDR 24.8 billion (about $37 billion) over 40 years. (See "Multilateral Debt Relief Initia- tive" in chapter 1.) The debt relief initiative went into effect on July 1, 2006. For fiscal 2006, debt relief programs were FIGURE 3.6 ongoing from past years through the Heavily Indebted Poor TOTALIDACOMMITMENTSBYSECTOR | FISCAL 2006 Countries (HIPC) Initiative (see figures 3.9 and 3.10). SHARE OFTOTAL LENDING OF $9.5 BILLION FragileStates Industry & Trade 8% 10% Education Analytic work suggests that there is a need to increase 3% Finance fragile states' capacity and accountability; to forge peace, Energy&Mining 10% Water, Sanitation security, and development links; to harmonize donor 7% &Flood Protection assistance; and to develop strong and flexible institutional Transportation 12% Agriculture, Fishing responses. 10% & Forestry In fiscal 2006, the Bank collaborated with United Nations system partners to better coordinate postconflict recovery Health & Other processes and to integrate the political, security, economic, Social Services 11% and social aspects of reconstruction. As cochair of the Information & Law & Justice Development Assistance Committee Fragile States Group, Communication 1% 28% & Public Administration SUMMARY OF FISCAL YEAR ACTIVITIES 59 FIGURE 3.7 the Bank continued to build policy consensus on state IDA'SSTEPPED-UPEFFORTSINTHESOCIALSECTORS building as the central objective, integrated approaches for 273 PROJECTS ONGOING (COMPARED WITH 239 A DECADE AGO) effective donor programs, fast and flexible responses, and 300 long-term engagement through nine country pilots of the Principles for Good International Engagement in Fragile 250 States. These points were incorporated into a new fragile 59 62 states strategy that was approved by the Board along with a 59 200 $25 million replenishment of the LICUS Trust Fund, which supports reform and transition efforts. (See www.worldbank 150 132 135 .org/licus.) 98 100 SmallStates Since 2000, when the Development Committee discussed 50 82 85 77 the small states agenda set out in a joint World Bank­ 0 Commonwealth task force report, the Bank has been FY96 FY01 FY06 engaged in a new partnership with the world's 45 smallest Education Water,Sanitation,and Flood Protectiondeveloping countries (most with populations of less than 1.5 Health,Nutrition,and Population million) and the international community to respond to the development needs of small states. In this partnership, the Note: Number of projects under implementation includes projects in both IDA-only and blend countries.IDA commitment value of ongoing social sector projects:fiscal Bank committed to hosting a Small States Forum each year 1996, $12.2 billion;fiscal 2001,$14.2 billion;fiscal 2006,$15 billion. during the World Bank­International Monetary Fund Annual Meetings in order to give small states an opportunity to exchange information and set priorities for future work. The forum complements the substantial lending and advisory assistance provided to small states as part of the Bank's regular country programs. In 2005, the forum reviewed the FIGURE 3.8 small states agenda and discussed the Bank's proposal for SOURCESOFIDAFUNDING | BILLIONS OF DOLLARS an innovative mechanism to provide catastrophe insurance, which would help vulnerable small states--especially those 20.7 in the Caribbean, Indian Ocean, and Pacific regions--better cope with mobilizing adequate and timely financing following natural disasters such as hurricanes and earthquakes. (See 12.7 12.7 11.7 www.worldbank.org/smallstates.) 9.2 7.9 MIDDLE-INCOMECOUNTRIES Middle-income countries continue to face substantial development challenges: achieving sustained growth that 1.5 0.9 0.9 provides productive employment; reducing poverty and IDA12 FY00­02 IDA13 FY03­05 IDA14 FY06­08 inequality; reducing volatility, particularly in their access to private financial markets; and strengthening the institu- IDA internal resourcesa Donor contributionsb IBRD net income contribution tional and governance structures that underpin viable market-based economies. The Bank is uniquely placed to a. IDA internal resources include principal repayments, charges less help these countries craft institutional reforms, attract administrative expenses, and investment income. For IDA14, this amount includes $0.8 billion, which will be financed by donor contributions through infrastructure investment across the public-private spec- the MDRI. trum, improve social service delivery, and cope with volatil- b.Includes structural financing gap. ity. Middle-income countries are generally eligible to receive IBRD assistance. TheRoleofIBRD IBRD is a AAA-rated financial institution--with some unusual characteristics. Its shareholders are sovereign 60 THE WORLD BANK ANNUAL REPORT 2006 governments, each of which has a voice in setting IBRD FIGURE 3.9 policies and many of which are eligible to borrow from it. HEAVILYINDEBTEDPOORCOUNTRIESDEBTRELIEF REDUCED DEBT STOCK AND IMPROVING DEBT SERVICE RATIOS IBRD's main goal is to reduce poverty by promoting sus- tainable economic development in middle-income and Percent Billions of dollars creditworthy low-income borrowing countries. It provides 25 $71 75 Debt service as percent financing (loans, guarantees, and related risk management of exports (left axis) tools) and expertise in development-related technical 20 60 Debt service as percent disciplines. of revenue (left axis) 15 45 IBRD helps clients gain access to capital and financial risk $31 Debt stock net present 10 30 management tools in larger volumes, on better terms, at value in 2004 terms (right axis) longer maturities, and in a more sustainable manner than 5 % % % 15 % they could receive from other sources. Unlike commercial 0 14.5 21.8 6.6 10.3 0 banks, IBRD is driven by development impact rather than Before HIPC (1999) After HIPC (2005) profit maximization. (See www.worldbank.org/mic.) Note: Weighted averages for the 28 countries that had reached the decision point IBRDLending as of end-July 2005. Source: World Bank. 2005. Heavily Indebted Poor Countries (HIPC) Initiative-- At $14.1 billion for 112 operations, new lending commit- Status of Implementation. IDA/SecM2005-0442. Washington,DC.World Bank. ments by IBRD in fiscal 2006 exceeded the previous year's level by $0.5 billion. This represents the highest volume of IBRD lending in the past seven fiscal years. The share of FIGURE 3.10 policy-based lending was slightly higher than in fiscal 2005. TRENDSINPOVERTY-REDUCINGEXPENDITURESBEFOREAND Latin America and the Caribbean received the highest level AFTERASSISTANCEUNDERTHEHIPCINITIATIVE of IBRD lending, with $5.7 billion, or 40 percent of total IBRD commitments, followed by Europe and Central Asia with Millions of dollars Percent $3.5 billion and East Asia and Pacific with $2.3 billion. Five $13,493 14,000 14 Poverty-reducing countries--Brazil, China, India, Mexico, and Turkey-- expenditures,millions received a combined commitment volume equaling 52 12,000 12 of dollars (left axis) percent of total IBRD lending in fiscal 2006. 10,000 10 Poverty-reducing expenditures,percent Among sectors, public administration, including law and 8,000 8 of GDP (right axis) $5,940 justice, received the highest volume of IBRD lending ($3.1 8.5% 6,000 6 billion), followed by transportation ($2.1 billion), and energy 4,000 4 and mining ($2.1 billion). The thematic composition of 6.4% 2,000 2 lending in fiscal 2006 was led by financial and private 0 0 sector development, followed by public sector governance Before HIPC (1999) After HIPC (2005) and urban development. Figures 3.11­3.13 show IBRD lending by region, theme, and sector. Development policy­ Note: Weighted averages for the 29 countries that had reached the decision point as of March 2006. based lending commitments are shown on the accompany- Source:World Bank. March 2006.Heavily Indebted Poor Countries (HIPC)-- ing CD-ROM. Statistical Update. Washington,DC. IBRDResources IBRD obtains most of its funds by selling bonds in interna- tional capital markets. In fiscal 2006, it raised $10 billion at medium- to long-term maturities, lower than the $13 billion raised in fiscal 2005. Debt securities, with a wide range of maturities and structures, were issued in 11 currencies. IBRD is able to borrow high volumes for long maturities on very favorable terms. IBRD's financial strength is based on its prudent financial policies and practices, which help it main- tain its high credit rating. As a cooperative institution, IBRD seeks not to maximize profit but to earn enough income to ensure its financial SUMMARY OF FISCAL YEAR ACTIVITIES 61 FIGURE 3.11 strength and sustain its development activities. IBRD's TOTALIBRDLENDINGBYREGION | FISCAL 2006 operating income was $1,740 million in fiscal 2006. IBRD SHARE OFTOTAL LENDING OF $14.1 BILLION retained $1,036 million in its general reserve and $64 South Asia 9% <1% Africa million in its pension reserve and added $140 million to the surplus account. In August 2006, the Executive Directors Middle East & proposed that the Board of Governors approve a transfer of North Africa 9% 17% East Asia & Pacific $500 million to IDA from allocable net income in fiscal 2006 and an additional transfer of $300 million to IDA from the surplus account. (See "Financial Statements" on the accompanying CD-ROM.) IBRD maintained adequate liquidity in fiscal 2006 to ensure its ability to meet its obligations. As of June 30, 2006, it held Latin America & about $24.9 billion in liquid assets. Also as of June 30, 2006, the Caribbean 40% 25% Europe & Central Asia IBRD's outstanding borrowings from capital markets were about $91.6 billion (net of swaps) (see figure 3.14). Borrow- ings exceeded equity by a factor of about three. Total disbursed and outstanding loans were $103 billion. In addition to variable-spread loans (40 percent of total loans) and fixed-spread loans (with variable rate, 19 percent, and FIGURE 3.12 with fixed rate, 8 percent) that are available for new commit- TOTALIBRDLENDINGBYTHEME | FISCAL 2006 ments, IBRD's loan portfolio includes old legacy loans: SHARE OFTOTAL LENDING OF $14.1 BILLION multicurrency pool loans, 12 percent; single currency pool Financial & Private Rule of Law 4% 31% Sector Development loans, 9 percent; and fixed-rate single currency loans, 8 percent. On May 2, 2006, the Executive Directors approved the adoption of a lower and more transparent lending rate for Public Sector Governance 14% multicurrency pool loans and dollar single-currency pool Economic loans at the London Interbank Offered Rate plus 100 basis Management 1% 8% Trade & Integration points (or the fixed-rate equivalent) for borrowers that agree Social Protection& Environmental& to execute an omnibus amendment to their existing loan Risk Management 7% Natural Resource agreements. Social Development, 7% Management Gender & Inclusion 3% Consistent with IBRD's development mandate, the 11% Urban Development principal risk it takes is the country credit risk inherent in Human Development 8% 6% Rural Development its portfolio of loans and guarantees. Risks related to interest and exchange rates are minimized. One summary measure of the Bank's risk profile is the ratio of balance sheet equity to outstanding net loans, which is closely managed in line with the Bank's financial and risk outlook. FIGURE 3.13 This ratio stood at 33 percent as of June 30, 2006 (see TOTALIBRDLENDINGBYSECTOR | FISCAL 2006 figure 3.15). SHARE OFTOTAL LENDING OF $14.1 BILLION Industry & Trade 6% 7% Education Partnerships Global partnerships are increasing because of the growing Energy&Mining 15% integration of the world's economies and the existence of development challenges that cross national boundaries. 14% Finance Transportation 15% These partnerships promote efforts in areas of common concern such as combating communicable diseases, preserv- Water, Sanitation 8% &Flood Protection ing the environment, acquiring and sharing knowledge, Health & Other Social Services 8% Agriculture, Fishing integrating trade, addressing international migration issues, 5% & Forestry and developing infrastructure. The Bank participates in some Information & Law & Justice 160 global and regional partnerships, for which it committed Communication <1% 22% & Public Administration more than $170 million from its own resources in fiscal 2006. 62 THE WORLD BANK ANNUAL REPORT 2006 FIGURE 3.14 The Bank plays different roles in these initiatives, including IBRD'SBORROWINGSANDINVESTMENTS | AS OF JUNE 30,2006 trustee of donor funds, financial contributor, and implement- BILLIONS OF DOLLARS ing agency. 111.2 103.0 103.3 TrustFunds 91.5 91.6 World Bank­administered trust funds foster partnerships by mobilizing and directing concessional resources to support poverty reduction across a wide range of sectors and regions, thereby supporting clients in achieving development results at the global, regional, and country levels. Much of this growth responds to the international community's desire for the Bank 31.1 25.1 26.6 26.4 24.9 to help manage broad global initiatives through multilateral partnerships, such as the Global Fund to Combat AIDS, Tuberculosis and Malaria; the Global Environment Facility; FY02 FY03 FY04 FY05 FY06 and the HIPC Initiative. Trust funds also support the World Bank Group's own development operations and work pro- Cash and liquid investments Borrowings outstanding after swaps grams. Many of these activities are further described in the World Bank's Trust Funds Annual Report. (See site index at www.worldbank.org.) Contributions,FundsHeldinTrust,andDisbursements FIGURE 3.15 The Bank's trust fund portfolio expanded in fiscal 2006. EQUITY-TO-LOANSRATIO | AS OF JUNE 30,2006 PERCENT Contributions from donors totaled $5.3 billion, an increase of 33.1 9.5 percent over fiscal 2005. Funds held in trust rose to $10.3 35 31.4 billion, a 10.5 percent increase. The top 10 donors accounted 29.4 26.6 for 80 percent of all contributions (see table 3.2). 22.9 MajorNewTrustFundPrograms In response to emerging development challenges, the donor community agreed to establish several new major trust fund programs during fiscal 2006, including the four highlighted here. 0 TheAvianandHumanInfluenzaFacility This facility com- FY02 FY03 FY04 FY05 FY06 prises several trust funds to address unmet financing needs and has pledges of more than $70 million. Funds support integrated country action plans and other activities as endorsed by the facility's advisory board. TheAfricaCatalyticGrowthFund This fund was established as a mechanism for growth with an initial contribution of £200 million from the United Kingdom. The fund seeks to leverage funds from other partners and support ongoing government programs to achieve the MDGs. Trust Fund for Anti­Money-Laundering and Combating Financing of Terrorism for Asia-Pacific and for Central America and the Caribbean This Canadian-financed fund strengthens the skills of agencies responsible for anti­ money-laundering activities and combating terrorism financing. SUMMARY OF FISCAL YEAR ACTIVITIES 63 RedSea­DeadSeaWaterConveyanceFeasibilityStudy This TABLE 3.2 $15.5 million multidonor trust fund finances studies on TOPTENTRUSTFUNDDONORS MILLIONS OF DOLLARS possible solutions to the declining level of the Dead Sea through a determination of whether the transfer of water DONOR FY05 FY06 from the Red Sea to the Dead Sea is feasible. (See www United States 358 713 .worldbank.org/cfp.) United Kingdom 552 664 Cofinancing Cofinancing is any arrangement under which funds from the Netherlands 411 488 Bank are associated with funds provided by sources from outside the recipient country for a specific lending project or European Commission 408 459 program. In fiscal 2006, 141 Bank projects leveraged $4.9 World Bank Group 462 422 billion in cofinancing. Major cofinanciers were the Inter- American Development Bank ($1.3 billion) and the United Japan 405 339 Kingdom's Department for International Development ($0.5 billion). Multilateral agencies contributed $3.5 billion in France 373 335 cofinancing. The regions benefiting most from these cofinanc- ing arrangements were Latin America and the Caribbean Italy 211 315 ($1.5 billion), East Asia and Pacific ($1.2 billion), and Africa Norway 202 272 ($1 billion). Sweden 193 193 FurtheringBank-FundCollaboration In March 2006, the Bank President and the IMF Managing Others 1,236 1,069 Director agreed to establish a six-member External Review Total contributions 4,811 5,269 Committee comprising current and former Bank and IMF officials, senior international finance executives, and Funds held in trust 9,322 10,293 government finance officials. The committee will solicit views from member countries on Bank-Fund collaboration, Contributionsa 4,811 5,269 which has increased significantly over time. The committee is expected to recommend specific improvements in Bank- Cash disbursements 4,235 4,374 Fund collaboration in such areas as policy advice, lending operations, technical assistance, and ways to tailor pro- Note: Donor ranking shown above is based on fiscal 2006 contributions. grams to meet specific country needs. a. Contributions are reported on a cash basis except for Global Environment Facility; the Global Fund to Combat AIDS, Tuberculosis and Malaria; and HIPC, which are reported on FinancialManagementFrameworkAgreement an accrual basis. Harmonizing and aligning donor assistance occurs at the country level through, for example, participation in joint analytic work, collaborative preparation of country and sector strategies, and development of common arrangements to finance projects and programs. The Bank made further progress with other donors on this agenda by signing a Financial Management Framework Agreement with the United Nations in March 2006. This agreement represents a significant milestone in the Bank's ongoing program of finan- cial management harmonization, which had, until now, focused on bilateral and multilateral development agencies. This new agreement allows the Bank to rely on the UN's financial management regulations within a framework that continues to provide the Bank with reasonable assurance that its funds will be used for the intended purposes. 64 THE WORLD BANK ANNUAL REPORT 2006 THEWORLDBANK ANNUALREPORT2006 OfficeofthePublisher, ExternalAffairs TeamLeader Richard A. B. Crabbe Editor Anne Carlin AssistantEditor Jonathan H. Tin EditorialProduction Cindy A. Fisher Mary C. Fisk Aziz Gökdemir PrintProduction Randi Park Denise Bergeron The World Bank Annual Report 2006 was typeset by Publishing Dimensions. 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