Finance

Background

Development Policy Finance: Critical concerns surrounding accountability and outcomes for people and the climate

26 March 2021 | Minutes

Presentation by Heike Mainhardt, Senior Advisor, Urgewald during CSPF event on Friday 26 March

This virtual Civil Society Policy Forum session on 26 March 2021 was sponsored by Urgewald, Sustainable Development Policy Institute; Eurodad; Arab Watch Coalition; Recourse; Bretton Woods Project; Gender Action; Friends of the Earth US; Heinrich Boell Stiftung, Reality of Aid.

Panellists  

  • Koen Davidse, Executive Director for the Netherlands Constituency, World Bank Group (moderator)
  • Heike Mainhardt, Senior Advisor, Urgewald
  • Hina Aslam, PhD, Associate Research Fellow; Lead Energy, Head China Study Center, Sustainable Development Policy Institute
  • Chiara Mariotti – Senior Policy Officer, Eurodad
  • Mark Pascual, Reality of Aid
  • Stephane Guimbert, Director for Operations Policy, World Bank Group

Session

Koen Davidse, Executive Director for the Netherlands Constituency, World Bank Group

  • The Bank gives Development Policy Financing (DPF) to around 50 countries a year. These include policy and institutional reforms called prior actions
  • Achievements and consequences of Development Policy Operations (DPOs)
  • Comes at a good time as we are embarking on a review of the instrument
  • Can make a big impact – in Ukraine for e.g., enhance gas and improvements in social safety net
  • Bank plans to use more to reduce fossil fuel subsidies and build social safety nets
  • New ambitions on climate co-benefits and balance adaptation and mitigation

Heike Mainhardt, Senior Advisor, Urgewald

  • DPF budget support is released once pre-determined policy and institutional reforms met – called ‘prior actions’
  • They place a key role in policies than enable energy investment
  • Review 2014-18 over 120 DPOs in more than 55 with prior actions that specifically targeted the energy sector, many target increasing infra investments
  • World Bank goal of universal energy access (UN SDG 7) – only 14 prior actions in ten countries were aimed at energy access (WBG database from 2005). Since 2012, no prior actions specified increasing electrification.
  • Pakistan has the 4th largest energy access deficit in the world. Had two WB power sector reform DPFs – no prior actions aimed at increasing electrification or renewal energy. But did include increasing gas production. Pakistan electrification rate dropped from 74 to 71 per cent.
  • CPEK programme – power generation in Pakistan. If Pakistan has prioritised this, generation mix would have been cleaner.
  • Paris agreement – critical energy transition is happening far too slowly. On track to produce 120% more fossil fuels by 2030 than is compatible with a 1.5C path.
  • DPF policy reforms create enabling environment for investment – including fossil fuels. Must end promotion of enabling fossil fuel investments, not just promote renewal energy.
  • Tax reform policies common in the prior actions of DPF
  • Problem isn’t that the Bank is providing renewal energy, the problem is that the Bank is promoting both renewal energy and fossil fuels.
  • Example of Colombia – very dependent on oil and coal. 2 sustainable development and green growth DPFs in Colombia. But framework allowed for fracking and deepwater drilling to qualify for tax breaks. Another DPF specified adaption of carbon tax but also tax reforms than lowered the corporate income tax rate and raised VAT rate – favoured oil and gas firms – what is the purpose of a carbon tax if you turn around and give bigger tax breaks to oil and coal?
  • It is time to close the billion dollar fossil fuel loophole. Coal, oil and gas should be added to the exclusive energy list
  • The Bank needs to define DPOs to be accountable to the Paris Agreement and Universal Energy Access, reduce dependency on fossil fuels, focus on electrification.

Hina Aslam, PhD, Associate Research Fellow; Lead Energy, Head China Study

  • If it could have been started from earlier phase, their may not be as many coal fired power plants and there is untapped potential of renewable energy.
  • Pakistan is importing almost 1/3 of its energy demand. 14.4 US billion dollars – higher costs of doing business and living in Pakistan.
  • Energy sector went through much needed phase of investment.
  • While investments are being made to diversify energy supplies, share of imports have been increasing
  • Level of unmet energy demand has decreased, but that has led to an increase reliance of imported fuels – transition to green energy needed, investing in infrastructure to reduce energy losses, shifting demand to alternative local fuels are some of the solutions.
  • World Bank DPFs have been supporting these initiatives where the potential of these energy investments are highlighted in economic terms
  • Pakistan needs to accelerate the electrification rate, needs to support off grid access for rural households, World Bank’s public finance should only finance renewal energy solutions
  • How the Bank could be supporting clean and inclusive recovery in Pakistan

Koen Davidse

  • Due to Covid, we are facing reversals on several SDGs

Chiara Mariotti – Senior Policy Officer, Eurodad

  • Present some preliminary results of new Eurodad research on DPF
  • DPF is a major channel of influence on a country’s policy space
  • Pushes the MFD agenda and a business-first bias
  • There is insufficient poverty and social impact assessment and no safeguards
  • There is a lack a democratic ownership
  • Between 2005 and 2015, the World Bank approved 630 DPOs worth $116 billion
  • On average it represents 1/3 of total World Bank lending but reached 40 per cent after the global financial crisis
  • Post Covid-19, the Bank’s DPF portfolio is increasing
  • IBRD – DPF constituted 47 per cent of lending $7.1 billion
  • Regional distribution of DPOs, concentrated in Latin America and sub-Saharan Africa
  • Transfers, money largely through loans, grants less than 10 per cent of amounts. Majority of projects are in IDA countries, but majority of resources to IBRD countries
  • 66 per cent focused on public administration support, only 21 per cent had health as a sector of focus
  • To open the black box, look at prior actions. Eurodad counted 553 prior actions for 78 DPOs. Only 7 countries, prior actions explicitly gender related, focus on targeted social safety nets, with reference to migrants in India and Ecuador and informal workers in only two countries Uganda and Bangladesh
  • Only one country (Georgia) where there was a mention of implementation of impact assessment
  • Emphasis on transparency, accounts and oversight, PFM and SPEs management. .But only one country where there was citizen oversight (Dominican Republic) – shows that reforms not supported by public oversight and engagement
  • DPO promoted cutting public wage bill in Montenegro and cutting the minimum wage in Ecuador, deregulation of urban land use in Kenya and in Ethiopia, a streamline of the Bank’s Maximising Finance for Development
  • Crucial to WB financing Covid recovery, fighting climate change and engaging in just transition
  • Runs the risk of undercutting democratic ownership
  • World Bank is going to have a huge impact on countries’ recovery and reconstruction and there are clear signs that it will use the crisis as an opportunity to push for structural reforms and its own agenda on countries. In a context of deep vulnerability of countries, this risks eroding countries’ policy space. It must be accompanied by much greater scrutiny by civil society and mechanisms for public and parliamentary consultation,
  • Final call is for the Bank to use this moment (the upcoming DPF retrospective) and more generally rethinking moment, the instrument and what is necessary to ensure this instrument enhances policy space of countries and serves the public good

Mark Pascual, Reality of Aid

  • How DPF supported a policy shift than will be detrimental to people and planet in Indonesia
  • World Bank’s Doing Business Report (DBR) supported the omnibus law on job creation which relaxes labour regulations and environmental protection standards to attract investments – plan to reach 40th rank of Ease of Doing Business index.
  • But significant impacts on labour rights, criticised by unions, NGOs and even investors and for impacts on environment
  • Open letter of 35 global investors against the Omnibus Law
  • Reduces job protections and benefits afforded by the 2003 labour law.
    Scraps requirement for all regions to maintain 30 per cent of watershed and island area as protected forest areas, and environmental impact assessments
  • Just one example of how policy reforms can reverse decades of progress in advancing human rights

Koen Davidse

  • All these points are important for DPF review (retrospective) and the climate action plan

Stephane Guimbert, Director for Operations Policy, World Bank Group

  • Good time for us – retrospective taking stock of the last few years and the recommendations from the last process.
  • DPOs important during the time of crisis response – as we were stepping up the volume of our financial support in response to Covid
  • The share of DPO hasn’t increased as significantly as a proportion of financing as in the GFC but has increased in absolute terms
  • Important for avoiding a reversal on health and people side. Policies on social protection e.g. in India through cash transfers
  • How we are looking at poverty and social impacts – we do that quite systematically but around the time of the last retrospective, the IEG asked the Bank to intensify this
  • On gender, we see an increasing use of policy operations to address gender disparities – lots of policy action to address gender disparities
  • Last year, 84 per cent of DPO included one or more action related to climate change. E.g. fuel subsidy reforms
  • Jamaica supported important prior action of the NDC plan of the country
  • Pakistan – focus on building a sector which is financially sustainable
  • Climate co-benefit doesn’t have same impact – so measurement has to identified more
  • On questions of impact assessment, I am keen to follow up on specific examples – thinking of this type of assessment is to capture all sort of disparities – if doesn’t capture this, it is important to look at. Identified in 2015 retrospective. Methodology and approach sound but on implementation, we could do more.

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