Strategic Compact of The World Bank Groop
World Bank provides low-interest loans, zero to low-interest credits, and grants to developing countries.
The Strategic Compact is a plan for fundamental reform and renewal of the World Bank to make it more effective in achieving its basic mission of reducing poverty. Through the Compact, the Bank’s shareholders and management will invest in and implement a series of changes over the next 30 months to transform the way the institution does business: improving its products, speeding up its processes, lowering its costs, and increasing its development impact. The Compact will also establish clear performance criteria against which progress will be measured, and for which Management will be held accountable.
The Compact’s vision is of a professionally excellent institution which responds quickly to the evolving and varying needs of its clients and provides a wide range of high-quality services; which operates through partnerships and acts as a catalyst for private-public collaboration; and which builds capacity and knowledge for the entire development community. Above all, it is a vision of an institution which delivers development results.
Main objective. The Bank must change if it is to be effective in the rapidly changing global economy-where private capital flows are five times greater than official assistance, where many different actors (from multilateral banks to NGOs) now play a much greater role in development, and where technological change has revolutionized the way business is done. The Bank has been slow to respond to these changes–with overly bureaucratic processes, weak capacity in key areas (e.g. the social sectors, institution-building, banking), and insufficient impact from the projects it supports.
The central objective of the Compact is to make the Bank more efficient and to increase the development effectiveness of everything it does. In terms of lending effectiveness, for example, it is expected that the proportion of projects rated satisfactory will increase from 66 percent to 75 percent, meaning that an extra $2 billion a year of the Bank’s lending will have greater impact. Given the catalytic role of Bank funding, this translates into a total $5 billion a year of more effective lending for development.
Achieving the objective. The Compact takes a comprehensive approach to increasing the Bank’s development effectiveness in four priority and related areas: refueling current business activities; refocusing the development agenda; retooling the Bank’s knowledge base and revamping insititutional priorities. This requires:
- Shifting resources from overhead and administration to front-line operations (with the goal of achieving a 60:40 front-line to back-line ratio, compared to the current ratio of roughly 50:50).
- Developing a new range of financial products and advisory services-with the emphasis on relevance and timeliness for clients.
- Eliminating cumbersome, inefficient processes to make the Bank quicker, leaner and more cost effective.
- Rebuilding technical expertise in key areas of development, and expanding the Bank’s focus in those areas-with the social sectors, institution-building and the private sector immediate priorities.
- Further decentralizing activities to the field in order to better customize country assistance strategies, design more appropriate conditionality, and build local ownership of development programs.
- Strengthening the Bank’s information management system to collect, synthesize and disseminate the best in development thinking.
- Reforming our Human Resources system to create a more flexible, performance-based, and diverse institution.
- Creating new and stronger partnerships with other organizations to enable the Bank to be more selective and specialize in those areas where it has a comparative advantage.
The benefits for our clients promise to be substantial: higher quality and more relevant products and services backed by an effective, modern knowledge management system; and a staff that combines state-of-the-art technical skills and global experience, within the context of a flatter, faster, more decentralized organization.
Costs. A high and rising share of the Compact’s overall costs will be met through a stringent program of savings and redeployments. Net additional investment under the Compact–excluding the cost of staff separations–is $250 million. This funding will be phased in to ensure that it is in line with the Bank’s absorptive capacity: $100 million annually in FY98 and FY99, and $50 million in FY00. Approval of the Compact’s funding will be contingent on the Board’s annual review of the Bank’s budget and work program.
By FY01, the administrative budget is projected to return to its current level, subject to demand for the Bank’s improved products and services. This goal will be met through significant increases in productivity as well as the program of savings and redeployments, aided by a comprehensive Cost-Effectiveness Review. This Review, which is already underway and is being conducted with the assistance of an international consulting firm, will be completed by July 1, 1997.
The total cost of staff separations is projected at $100-150 million over the Compact period, with a first installment of $60 million requested now. The separation program will be rigorously implemented and every effort made to contain costs. Separation funds will not be used where retraining or reassignment is an option, nor to finance the release of poor performers. The Board will receive full reports on the implementation of the separation program every six months. Moreover, in the context of the review of Human Resources policies, there will also be a review of the Bank’s Severance Policy.
Finally, on costs, the Compact does not assume or require any increase in the price of the Bank’s products and services. The Compact can be paid for within the framework of the Bank’s own earnings. The longer-term issue of the decline in the Bank’s net income will be addressed separately by the Board in its upcoming review of income dynamics.
Measuring Progress. There are a broad range of specific measures for gauging effectiveness and accountability under the Compact. These include:
- tracking development progress made by the Bank’s client countries (using the new World Development Indicators);
- setting stretch targets for client responsiveness (including substantial cuts in elapsed time for provision of services); and
- monitoring the main drivers of project outcomes (including quality-at-entry and portfolio management).
There will also be regular reviews of the project pipeline, progress in streamlining business processes, and personnel development. Finally, there will be a biannual review by the Board of the effectiveness of the Bank’s senior management.
Impact on IDA. None of the funds appropriated for IDA will be used to finance the Compact. More importantly, a more cost-effective, results-oriented Bank will lead to a stronger IDA. IDA borrowers will get a better quality product; and IDA donors will have greater confidence that their contributions are being used even more effectively.
Why will it work? The Compact is not just an internal reorganization. Rather, it is a comprehensive plan rooted in the Bank’s business strategy-and focused on the external delivery of higher quality products and services to its clients. The Compact is not about shifting organizational boxes; it is about fundamental renewal-changing the way the Bank does business. It is the outcome of extensive consultation throughout the organization and reflects feedback from clients and shareholders. The entire Bank management team has formally signed on to the plan, and is ready to stand accountable for its implementation. To ensure success, the Compact requires the support and partnership of all the Bank’s shareholders.