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(V
OLUME 
1
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EPORT
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46143
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AAA 
Analytical and Advisory Activities 
KPI 
Key Performance Indicator 
AFR 
Africa Region 
LCR 
Latin America and the Caribbean Region 
APL 
Adaptable Program Loan 
LICUS 
Low-Income Countries Under Stress 
ARD 
Agriculture and Rural Development 
LIL 
Learning and Innovation Loan 
ARPP 
Annual Report on Portfolio 
Performance 
M&E  
MDB 
Monitoring and Evaluation  
Multilateral Development Banks 
BP 
Bank Procedures 
MDG 
Millennium Development Goals 
BW Business 
Warehouse 
MIC 
Middle-Income 
Countries 
CAS 
Country Assistance Strategy 
MNA 
Middle East and North Africa Region 
CASCR 
Country Assistance Strategy 
Completion Report 
MP  
NLTA 
Montreal Protocol  
Non-Lending Technical Assistance  
CFAA Country 
Financial 
Accountability 
Assessment 
OECD 
Organization for Economic Cooperation 
and Development  
CODE 
Committee on Development 
Effectiveness 
OED 
Operations Evaluation Department (now 
IEG) 
CPAR Country 
Procurement 
Assessment 
Review 
OESW  
OPCS 
Other Economic and Sector Work  
Operations Policy and Country Services 
CPIA 
Country Policy and Institutional 
Assessment 
OP  
PAD 
Operational Policy  
Project Appraisal Document 
CPPR 
Country Portfolio Performance 
Review 
PER  
PIP 
Public Expenditure Review  
Portfolio Improvement Program 
DEC 
Development Economics 
PREM 
Poverty Reduction and Economic 
DO 
Development Objective 
 
Management Network 
DPL 
Development Policy Lending 
PRSC 
Poverty Reduction Support Credit  
EAP  
ECA 
East Asia and Pacific Region  
Europe and Central Asia Region 
PRSP  
PSD 
Poverty Reduction Strategy Paper  
Private Sector Development Sector Board 
ED 
Education Sector Board 
PSG 
Private Sector Governance 
EMT 
Energy and Mining Sector Board 
PSR 
Project Status Report 
ENV 
Environment Sector Board 
QAG 
Quality Assurance Group  
EP 
ERL 
Economic Policy Sector Board 
Emergency Recovery Loan 
QEA  
QSA 
Quality-at-Entry Assessment  
Quality of Supervision Assessment  
ESSD 
 
Environmentally and Socially 
Sustainable Development Network 
BCAS  
RDV 
Results-Based CAS  
Rural Sector Board 
ESW 
Economic and Sector Work 
MAS 
Results Monitoring and Analytic System 
EXT 
External Affairs 
RVP 
Regional Vice President  
FSE 
Finance Network 
SAL 
Structural Adjustment Loan 
FSP 
GEF 
Financial Sector Board 
Global Environment Facility 
SAR  
SDV 
South Asia Region  
Social Development Sector Board 
HDN 
Human Development Network 
SF 
Special Financing 
HNP 
Health Nutrition and Population 
SIL 
Specific Investment Loan 
 
IAD 
Sector Board (now HE) 
Internal Auditing Department 
SP  
SSP 
Social Protection Sector Board  
Sector Strategy Paper 
IBRD 
International Bank for 
STATCAP 
Statistical Capacity Building  
 
ICR 
Reconstruction and Development  
Implementation Completion Report 
TA  
TAL 
Technical Assistance  
Technical Assistance Loan 
IDA 
International Development 
TF 
Trust Fund 
 
IEG 
Association  
Independent Evaluation Group 
TR  
TTL 
Transport Sector Board 
Task Team Leader 
IFC 
International Finance Corporation 
UD 
Urban Development Sector Board 
IG 
Investment Grade 
WBI  
World Bank Institute  
INF 
Infrastructure  
WDR 
World Development Report 
INT  
IP 
Institutional Integrity  
Implementation Progress 
WSS 
Water Supply and Sanitation Sector 
Board (now WS) 
ISR 
Implementation Status and Results 
Report 
 
Page  3
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AGE 
 
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.....................................................................................................................
i-v 
 
I. Introduction .........................................................................................................................1 
 II. 
Portfolio Size and Composition...........................................................................................2 
III. Portfolio 
Performance........................................................................................................18 
IV. 
Analytical and Advisory Activities ...................................................................................29 
 V.  
Progress in Implementing the Results Agenda .................................................................40 
VI. Recommendations..............................................................................................................52 
 
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Table 2.1 
Single Tranche Loans/Credits by Region...................................................................3 
Table 2.2 
Portfolio by Client Grouping....................................................................................11 
Table 2.3 
Portfolio by Sector of Focus and Theme..................................................................14 
Table 2.4 
Portfolio by Lending Instrument..............................................................................16 
Table 3.1 
Trends in Quality-at-Entry and Supervision ............................................................21 
Table 3.2 
Portfolio Status Indicators by Region and Network.................................................23 
Table 4.1 
AAA by Major Type................................................................................................30 
Table 4.2 
AAA Deliveries and Costs by Country Category Grouping....................................32 
Table 5.1 
Updates against Results Action Plan for FY05........................................................48 
Table 6.1 
Implementation Status..............................................................................................52 
 
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Figure 2.1 
Trends in Portfolio Size and Resource Transfer.....................................................2 
Figure 2.2A  Investment Approvals.............................................................................................4 
Figure 2.2B  Development Policy Lending Approvals................................................................5 
Figure 2.3 
Portfolio Distribution by Region.............................................................................9 
Figure 2.4 
Portfolio Distribution by Network........................................................................12 
Figure 3.1 
Proportion of Operations with Satisfactory Outcomes .........................................18 
Figure 3.2 
Outcomes by Region.............................................................................................19 
Figure 3.3 
Outcomes by Sector Board....................................................................................20 
Page  4
Figure 5.1 
The Bank’s Results Agenda..................................................................................40 
 
Page  5
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Box 2.1  
TheTsunami Tragedy..............................................................................................9 
Box 2.2  
A Diverse Portfolio...............................................................................................10 
Box 3.1  
Proactive CPPR.....................................................................................................26 
 
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Annex 1 
Guarantees.............................................................................................................54 
Annex 2 
The Portfolio - - An Overview Table....................................................................58 
Annex 3 
Basic Portfolio Definitions and Data Sources.......................................................59 
Annex 4 
FY05 PIP Countries and PIP Projects...................................................................65 
Annex 5 
Africa Portfolio Improvement Plan.......................................................................66 
 
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This report is the product of a Bank wide tea
m
effort, with input from many VPUs 
across the Bank.  It was prepared by a team managed by Tray Sinha and Xavier Legrain, and 
included Robert Drysdale, Amnon Golan, Melvin Vaz and Andrew Follmer.  Helpful advice and 
contributions were received from a numbe
r
of colleagues across the Bank including, Gerard 
Byam, Richard Cambridge, Irene Xenakis, Marisa Fernandez-
Palacios, Christian Rey, Tawhid 
Nawaz, Sally Zeijlon, Pervaiz Rashid, Ulrich Zachau, Gisu Mohadjer, Barbara Kafka, Brigitte 
Duces, Aloysius Ordu, Dav
id Steel,  Kevin Cleaver, Sushma Ganguly, Severin Kodderitzsch, 
Sanjiva Cooke, John Underwood, Susan Stout, Nevena Alexieva, Suman Babbar, Laszlo Lovei, 
Stefan Koeberle, Gloria Grandolini, Egbert Gerken, Alfred Nickesen, Christopher Hall, Sudhir 
Shetty, Ro
bert Hindle, Simon Robertson, Edith Wilson, David Theis, Surendra Agarwal, 
Padmanabha Hari Prasad, Alain Barbu, Frederick Swartzendruber and Yermal T. Shetty.  
Document preparation assistance was provided by Amelia Laya and Conchita Castillo. 
 
Prem Garg, Director, Quality Assurance Group, guided the overall effort. 
Page  6
Annual Report on Portfolio Performance FY05 
 
   i 
EXECUTIVE SUMMARY 
 
1. 
The Annual Report on Portfolio Performance (ARPP) provides the Board and Senior 
Management with a strategic ove
rview of the effectiveness of the Bank’s lending and AAA 
portfolio in delivering results to its clients.  It also provides Senior Management with real 
time information to assess what is working well, or less well, together with recommendations 
on measures to maintain or improve the quality of the portfolio—a key vehicle for delivering 
results to our clients. 
 
L
ENDING  
P
ORTFOLIO  
S
IZE  AND  
C
OMPOSITION
 
2. The 
active 
portfolio
1
recorded a modest one percent increase in FY05—reversing the 
declining trend recorded in the previous five years.  Total net commitments increased from 
$95.2 billion in FY04 to $96.1 billion in FY05.  However, portfolio size remains $21.2 
billion (18 percent) lower than its FY00 level.  During the period FY00
–
FY05, portfolio 
composition has continued to shift towards lower income countries, with a commensurate 
decline for International Bank for Reconstruction and Development (IBRD) Investment 
Grade countries (-52 percent), Blend countries (-36 percent), China (-38 percent), and IBRD 
Only (-16 percent).  Portfolio size has increased mostly for LICUS (127 percent) and to a 
lesser extent for International Development Association (IDA) Only countries (11 percent).  
The Networks with the largest active portfolio remain to be INF, Human Development 
Network (HDN) and Environmentally and Socially Sustainable Development Network 
(ESSD), together accounting for about 88 percent of the total.  The INF action plan has 
successfully re-engaged the Bank in supporting infrastructure and INF is the only Network 
with a significant increase in active portfolio in FY05.  The FY05 active portfolios for all 
Networks remain lower than the FY00 levels.   
 
3. 
FY05 approvals increased by about 12 percent from $20.4 billion in FY04 to $22.8 
billion.  This is due to a 38 percent increase in IBRD investment approvals, primarily 
concentrated in South Asia Region (SAR) and Europe and Central Asia Region (ECA).  
Approvals to India doubled, partially due to this post-tsunami response.  Approvals to other 
blend countries increased by about 50 percent.  FY05 IDA approvals, although constrained 
by the scarcity of resources under IDA 13, still registered their second largest amount ($8.6 
billion) in IDA’s history after the $9.0 billion record achieved in FY04.  Approvals for ESSD 
and INF significantly increased in FY05 while approvals for all other Networks declined 
compared to FY04 levels.   
 
4. 
There are encouraging signs that approvals will continue to grow.  First, the INF 
action plan is expected to further increase business in all regions.  Second, the IDA 14 
replenishment for commitments from FY06 through FY08 has been successfully completed 
with a sizable increase over the IDA 13 replenishment.  Third, the shift to single tranche 
Development Policy Lending (DPL) helps lay the foundation for a series of future operations 
1
For purposes of the ARPP, the active portfolio is defined as all active loans, credits and grants 
approved and still under implementation at the end of the fiscal year.  The active portfolio includes 
GEF, IBRD, IDA, Montreal Protocol, and Special Financing operations.  Active portfolio as well as 
approval figures do not include Guarantees.   
Page  7
Annual Report on Portfolio Performance FY05 
 
   ii 
linked to the pace of governments’ reform initiatives.  And fourth, initiatives introduced 
under the Middle-income Countries (MIC) action plan and the Modernization and 
Simplification agenda are beginning to have an impact on the volume of approvals.  Looking 
forward, approvals are expected to grow to about $24
–
25
billion a year while the active 
portfolio should stabilize at about $100 billion during the period FY06
–
FY08.   
 
P
ORTFOLIO  
P
ERFORMANCE
 
5. 
The FY04 ARPP noted that the marked decline in FY03 in satisfactory Development 
Outcomes had been reversed.  This was based on an analysis of about half of FY04 exits.  
Since then more complete evaluation data has become available, including all of FY04 exits 
and some 163 operations which exited in FY05.  The more complete data confirm that the 
decline in portfolio performance has indeed been reversed and satisfactory Development 
Outcomes
2
increased to 79 percent
—
a
level unmatched since the early 1980s.  The average, 
weighted by the lending amount, is higher at about 83 percent due to the effect of better 
performing larger countries such as China.  
 
6. 
There are substantial regional and sectoral variances in Development Outcome 
performance.  Four regions, Europe and Central Asia Region, Latin America and the 
Caribbean Region (LCR), East Asia and Pacific Region (EAP) and South Asia Region, are at 
the top with satisfactory Development Outcome performance ratings in the 80 percent plus 
range.  The remaining two regions, Africa Region (AFR) and Middle East and North Africa 
Region (MNA) are clustered at 72 percent, and need to improve their performance further.  
AFR has embarked on a portfolio improvement program which emphasizes quality-at-entry 
support to task teams, and greater attention to problem projects through additional resources 
and attention to problematic country portfolios.  This is expected to take AFR satisfactory 
Development Outcome to the 75 percent plus range which is considered a reasonable target 
for the medium-term considering institutional weaknesses in some of the AFR countries.  
MNA is trying to improve Development Outcomes by putting more emphasis on quality-at-
entry and quality of supervision.  The recently completed QEA7 shows good results for 
MNA with 100 percent satisfactory rating, though on a relatively small sample of 14 projects.  
Amongst country groupings, LICUS Development Outcomes are the lowest at about 60 
percent satisfactory.  More recently there is an improving trend with DO at about 65% 
satisfactory in FY04.  Amongst the Sector Boards, Environment, Health, Private Sector 
Development, and Public Sector Governance show low satisfactory Development Outcomes 
of less than 75 percent.  Quality-at-entry and Borrower institutional capacity are issues for 
these Sector Boards.  These Sector Boards are putting greater emphasis on assuring quality-
at-entry with encouraging results more recently.  However, it would be prudent for these 
Sector Boards to sustain this emphasis on quality-at-entry as discussed below. 
 
7. 
Sound quality-at-entry and quality of supervision are important building blocks for 
assuring Satisfactory Development Outcome.  According to Quality Assurance Group (QAG) 
assessments, although only about ten percent of projects have unsatisfactory quality-at-entry 
or quality of supervision, another quarter of projects have only a moderately satisfactory 
2
All Development Outcome values are based on a three year moving average basis because of marked 
year-to-year fluctuations.  Overall Bank target for Development Outcomes is 80 to 85 percent range 
which allows room for calculated risk-taking while managing the reputational risk to the Bank. 
Page  8
Annual Report on Portfolio Performance FY05 
 
   iii 
rating and this provides opportunities for improving performance further.  With regard to 
regional performance, the QEA7 results suggest that that all regions, except AFR are now at 
or above the 90 percent satisfactory level, which is the current target.  However, all regions, 
especially AFR, can improve quality-at-entry by putting more emphasis on simpler project 
designs suited to country implementation capacity, and by devoting more time and attention 
to assuring project readiness at entry.  With regard to the quality of supervision, performance 
of AFR and MNA needs strengthening.  Greater attention to Monitoring and Evaluation 
(M&E) is needed to identify problems earlier.  Improved M&E indicators will allow a more 
objective basis for rating projects and will allow earlier problem identification.  A special 
review done as a part of this ARPP shows that portfolio risks are understated leading to a 
lack of realism in rating.  The special assessment shows that 22 percent of the portfolio is at 
risk of not meeting its Development Objectives (DO) but regional assessments rate only 
about 16 percent of projects as risky.  The realism rating for the LICUS group of countries is 
especially low at 58 percent compared with 78 percent for overall portfolio.  Special attention 
is needed to improve candor and realism of project performance ratings, and to work out 
risky projects through more aggressive project restructuring and downsizing when needed.  
The review and supervision of Guarantee operations is being strengthened and Operational 
Policy (OP) and Bank Procedures (BP) 14.25 have been issued.  Given the growing volume, 
Guarantee operations should also be subjected to independent monitoring and evaluation. 
 
8. 
A review of the Portfolio Improvement Program (PIP) shows that the PIP is 
successful in highlighting problems, but more attention is needed to resolving them after their 
identification.  To improve portfolio results, more attention is also needed to corruption and 
fraud problems in Bank-supported projects implemented by Bank
’s borrowers.  Detailed 
implementation reviews focused on fiduciary aspects have been piloted in cooperation with 
Bank’s Institutional Integrity (INT) Department and they show good results in identifying 
corruption and fraud problems.  These reviews suggest that the Bank, Governments and 
Project Implementation Units need to monitor and exercise greater controls in projects, 
especially in countries where the problem is most acute.  
 
9. 
In summary, these findings point to the following recommendations: 
 
·
Quality-at-Entry.  
While Quality-at-Entry has improved, there are still soft 
spots.  The Africa region, especially in low CPIA countries, can  improve 
quality further through simpler and more focused project design adapted to 
weaker implementation capacity, and through greater attention to project 
readiness and sustainability; 
 
·
Quality of Supervision
 needs to be strengthened through greater candor in 
project rating, and through simplified guidelines for project restructuring.  
The realism of rating of LICUS at 58 percent suggests the need for greater 
candor and realism in reporting on LICUS performance.  The candor and 
realism of ratings in AFR and ECA amongst regions and the INF, amongst 
the Networks, needs to be improved further; 
 
·
Sector Boards
 with low Development Outcome results (FY02
–
05) are 
Environment, Health, Private Sector Development, and Public Sector 
Governance.  It would be prudent for these Sector Boards to address sector-
specific project design and staff skills issues in order to improve 
Page  9
Annual Report on Portfolio Performance FY05 
 
   iv 
Development Outcomes further to the 75 percent plus range on a consistent 
basis.  Several sectors, such as the Private Sector Development Sector Board 
(PSD) are already taking action with good results more recently and this 
effort should be continued; 
·
Portfolio Risk 
is understated.  The ISR review function needs strengthening 
through additional support for over-burdened Sector managers and TTLs.  
Incentives for reporting problems, as well as the process of review by 
managers need to be strengthened;   
 
·
Guarantee Operations.  
Given the growing volume of Guarantees they 
should be subjected to independent monitoring and evaluation; 
 
·
Portfolio Improvement Program 
 is good in highlighting problems, but 
follow-up actions need to be strengthened through improved CPPRs; and 
 
·
Fraud and Corruption Problems
 affect some projects as demonstrated by 
detailed implementation reviews in several risky countries.  This suggests that 
the Bank and Governments may need to identify additional instruments, or 
modify existing ones, to detect and mitigate these risks.  The Operations 
Policy and Country Services (OPCS), in collaboration with INT, should 
review the findings of INT cases to identify potential weaknesses in current 
fiduciary policies and propose remedial measures. 
 
A
NALYTICAL  AND  
A
DVISORY  
A
CTIVITIES
 
10. 
The ARPP overview of Bank AAA provides a basis for judgment about the current 
status and future direction of analytic and advisory services to clients as well as their quality 
and effectiveness.  The evidence first noted in FY04 of a shift from core diagnostic AAA 
towards more country-tailored products has continued along with improved coordination 
among development partners in the performance of country AAA. 
11. 
These positive trends favor greater alignment of AAA with Country Assistance 
Strategy (CAS) objectives and outcomes, including a firmer analytic foundation for Bank 
lending.  The movement toward improved AAA partnerships, particularly in the context of 
Poverty Reduction Strategy Papers (PRSPs) or equivalent country frameworks for setting 
AAA priorities, opens up the promise of more efficiency in the use of aid resources for 
analytic and knowledge services.  Even though successive quality assessments of individual 
Economic and Sector Work (ESW) tasks and a recent assessment of Technical Assistance 
(TA) tasks have shown progress on a broad front, findings from assessments of the overall 
country AAA program point to areas for improvement.  The core of the critique relates to 
how well Bank management oversees country AAA and how effectively AAA is used to help 
create a climate for reform.  Additionally, Bank-wide monitoring of AAA performance in 
FY05 has identified mounting delays in delivery of AAA products. 
12. 
Taken together, these findings point to the following key recommendations: 
 
·
Improving Management Oversight of Country AAA.
 
Regions should revisit 
arrangements for effective oversight of country AAA from inception through 
Page  10
Annual Report on Portfolio Performance FY05 
 
   v 
implementation.  A one-size-fits-all solution is not called for.  But, in the 
interest of improving accountability, greater clarity in day-to-day 
responsibility and oversight for country AAA is needed.  Regions should also 
ensure that such leadership is also empowered to work effectively across 
sectors; 
 
·
Building Coalitions for Change through Effective AAA Dissemination.
 
Regions should ensure that dissemination of AAA is planned and funded as 
an integral part of AAA program design and management and that links with  
External Affairs (EXT) and WBI are strengthened at both AAA design and 
completion stages; and
 
·
Addressing Delays in AAA Delivery.
 
With a view to remedy the situation, 
OPCS along with the Regions should examine the issues and factors 
associated with the reported increase in elapsed time to complete AAA tasks.
 
P
ROGRESS  
I
MPLEMENTING  THE  
R
ESULTS  
A
GENDA
 
13. 
Overall, it is clear that the Bank has made significant progress in developing the 
elements of the Results Agenda.  However, a number of concerns remain relating to a lack of 
staff knowledge about managing for results, insufficient clarity of staff on their role in the 
implementation of the Results Agenda, and ongoing challenge of aligning sector strategies 
with country programs.  The following key recommendations have been identified:   
 
·
Staff Learning
.
Management should finalize and implement a clear plan for 
training staff on managing for results, with particular attention to clarifying 
definitions and concepts, as well as demonstrating for staff how the many 
different elements of the results agenda fit together and how they relate to the 
roles of various staff.  This training should also focus explicitly on the issue 
of aligning sector tasks with country programs; 
 
·
Results Reporting
.
Design and implementation of the results reporting 
system  should be taken forward as a matter or priority; and 
 
·
Country Planning and Reporting.  
OPCS to provide guidance to country 
teams on how to ensure complementarity between RBCASs, CPRs, and CAS 
Progress Reports and to standardize information across countries as 
appropriate for Bank-wide reporting and analysis. 
Page  11
Annual Report on Portfolio Performance FY05 
 
   1 
I.    INTRODUCTION 
 
O
BJECTIVES  AND  
A
PPROACH
 
1.1 
The Annual Report on Portfolio Performance provides the Board and Senior 
Management with a strategic overview of the size, composition and trends in quality of the 
Bank’s active lending portfolio and Analytic and Advisory Assistance (AAA) program.  It 
also provides Senior Management real time information to assess what is working well, or 
less well, together with recommendations on measures to maintain or improve the quality of 
the portfolio - - a key vehicle for delivering results to our clients.  The main objectives of the 
FY05 ARPP are: 
 
·
assess the current status of the Bank’s lending portfolio and AAA program, 
and review management efforts and results to strengthen portfolio and risk 
management; 
 
·
assess likely trends and challenges to the portfolio over the medium-term and 
identify priority actions needed to address issues; and 
 
·
review progress in implementing the Bank’s results agenda, including the 
transition to a more comprehensive approach to results reporting. 
 
1.2 
The FY05 ARPP draws on materials that are prepared as part of regular portfolio 
monitoring functions carried out by the Regions and Networks, supplemented by 
project/portfolio data in the Bank’s management information systems.  The FY05 ARPP also 
draws on assessments and data commissioned from several special studies.  Consistent with 
past ARPPs, the report uses a five-year timeframe (FY00
–
05)
to examine medium-term 
trends in the portfolio.  In preparing the ARPP, extensive consultations were held with 
managers and staff from around the Bank. 
 
S
TRUCTURE  AND  
C
OVERAGE
 
1.3 
The report is organized into six Chapters.  Chapter II reviews the recent trends in size 
and composition of the lending portfolio.  Chapter III assesses overall portfolio performance 
results from the point-of-view of Development Outcomes as well as issues associated with 
measuring and reporting the risk that operations will not achieve their development 
objectives.  It focuses on quality of portfolio issues, especially based on QAG assessments of 
Quality-at-Entry and Quality of Supervision and Implementation Assistance.  It also provides 
a
brief review of portfolio improvement programs.  Chapter IV reviews the current status of 
the Analytic and Advisory Assistance portfolio.  It also focuses in particular on the quality 
and effectiveness of country AAA including the strategic relevance, integration and 
coherence of the overall program.  Chapter V examines progress in implementing the Results 
Agenda.  Recommendations are summarized in Chapter VI.  A second volume contains a 
detailed set of supporting statistical material. 
Page  12
Annual Report on Portfolio Performance FY05 
 
   2 
II.    PORTFOLIO SIZE AND COMPOSITION 
 
2.1 
This chapter analyzes active portfolio size and trends and finds that net commitments 
have registered a modest increase in FY05, reversing the trend of decline recorded in the past 
several years.  This increase is mainly due to an expansion of IBRD net commitments, as new 
approvals increased by 12 percent, particularly in SAR, ECA and to a lesser extent in MNA.  
EAP is the only Region whose portfolio has continued to decline.  Amongst Networks, INF is 
the only Network with a significant increase in active portfolio in FY05.  However, the FY05 
active portfolios for all Networks remain lower than FY00 levels.  FY05 IBRD investment 
approvals increased by 40 percent.  FY05 IDA approvals, although constrained by the 
scarcity of resources under IDA 13, still registered their second largest amount ($8.6 billion) 
in IDA’s history after the $9.0 billion record achieved in FY04.  Looking forward, approvals 
are expected to grow to $24
–
$25
billion per year and the active portfolio should stabilize at 
about $100 billion during the period FY06
–
FY08.  A more detailed analysis of trends is 
presented below. 
 
P
ORTFOLIO  
S
IZE  AND  
T
RENDS
 
2.2 
The Bank’s active portfolio for FY05 consisted of 1,463 operations with net 
commitments of $96.1 billion,
3
which represents an increase of about $1.0 billion in nominal 
terms from the level of the previous year.  This is an encouraging achievement as it reverses 
the trend of decline recorded since FY99.  However, net commitments under the active 
portfolio remain below the FY00
–
FY01 level (Figure 2.1).  The active portfolio continued to 
decline during the period FY00
–
FY03 although approvals were increasing.  This was caused 
by the exit of the large volume of operations approved during FY98 and FY99 to address the 
East Asia and Russian financial crises.   
 
F
IGURE 
2.1:
 
T
RENDS  IN  
P
ORTFOLIO  
S
IZE  AND  
R
ESOURCE  
T
RANSFER  
(FY00–05) 
 
60
80
100
120
140
160
2000
2001
2002
2003
2004
2005
L
e
v
e
l
Approvals in FY
Disbursements
Active Portfolio
Note: FY00=100. 
3
For purposes of the ARPP, the active portfolio is defined as all active loans, credits and grants 
approved and still under implementation at the end of the fiscal year.  Active portfolio as well as 
approval figures do not include Guarantees.  A more detailed definition is in Annex 3.  Trend lines 
(Figures 2.1 to 2.3) are in real terms.  All other commitment figures are in nominal terms.   
Page  13
Annual Report on Portfolio Performance FY05 
 
   3 
2.3 
In terms of resource transfer, both approvals and disbursements are higher than 
during the period FY00
–
01.
Approvals in FY05 reached $22.8 billion or 12 percent higher 
than in FY04.  It is worth noting that FY05 disbursements reached $18.9 billion, a 9 percent 
increase over FY04.  This is due to increased use of fast-disbursing Development Policy 
operations (see para 2.4 below) and to an increase in the disbursement ratio, for investment 
operations, to 23 percent from 21 percent in FY04.  During the period FY06
–
FY08, 
approvals are expected to increase to about $22
–
$25 billion a year, continuing the recovery 
initiated in FY04.  The portfolio is also expected to stabilize at about $100 billion during 
FY06
–
FY08 as the volume of quick-disbursing operations is likely to remain high.  Taking 
cancellations into account, disbursements are expected to increase to about $19 billion a year 
during the same period. 
 
2.4 
End year active portfolio information does not capture some quick-disbursing 
operations which enter and exit the portfolio during the same fiscal year because of their 
single-tranche design.  For FY05, there were 30 such operations for a total of $3.7 billion, 
accounting for about 16 percent of total approvals, a 50 percent increase in the number of 
fast-disbursing operations and a 70 percent increase in their amount, over FY04 figures.  This 
is caused by the increasing use of operations addressing a medium-term framework of policy 
and institutional actions through the use of programmatic Development Policy Lending.
4
While this trend first began in LCR several years ago it is also now noticeable in AFR, EAP, 
ECA and SAR.  LCR remains a very large user of programmatic Development Policy 
Lending.  Quick-disbursing operations are shown below (Table 2.1).    
 
T
ABLE 
2.1:
 
S
INGLE  
T
RANCHE  
L
OANS
/C
REDITS  BY  
R
EGION  
(FY04 
 AND  
FY05) 
(Amounts  in  US$  Million) 
 
No. of Projects
Amount
No. of Projects
Amount
AFR
3
320
11
900
EAP
14
2
305
ECA
1
18
4
225
LCR
10
1,402
6
1,103
MNA
1
45
1
100
SAR
4
480
6
1,105
Bank-wide
20
2,269
30
3,737
FY04
FY05
Region
G
UARANTEES
 
2.5 
The Board had approved 29 guarantees for 27 projects for a total amount of $2.7 
billion at end FY05.  Six partial risk guarantees and a guarantee facility for a total of $0.5 
billion were approved in FY05.  These amounts are not included in the portfolio figures 
4
The term “Development Policy Lending” replaced the term “Adjustment Lending” when the new 
OP/BP 8.60, Development Policy Lending, was approved in August 2004 to replace OD8.60 on 
Adjustment Lending and a myriad of related policy statements.  Development policy lending has 
become the sole instrument for policy-based lending.  This reflects a change in the Bank’s focus from 
addressing balance of payments needs in short-term stabilization to supporting a sustained medium-
term process of institutional and structural development that promotes growth, improves social 
conditions, and reduces poverty. 
Page  14
Annual Report on Portfolio Performance FY05 
 
   4 
discussed in this chapter and a detailed discussion of Guarantees is included in Annex 1.  
Supervision of guarantees, e
specially “stand-alone guarantees” is different from loans, as 
guarantees need to be supervised until they are released, canceled, or have reached the end of 
their term.  While the Bank monitors guarantees as part of its regular supervision missions, 
guarantees are not subjected to independent monitoring and evaluation by IEG and QAG as 
are the IBRD, the IDA and Trust Fund portfolios.  Given the growing volume of Guarantees 
it would be prudent to subject Guarantees to independent monitoring and evaluation. 
 
IBRD 
 
P
ORTFOLIO
 
2.6 
The Bank portfolio is composed of IBRD loans and IDA credits and Global 
Environment Facility (GEF)/Montreal Protocol (MP)/Special Financing (SF) grant funds.  
The IBRD portfolio continues to be the predominant part of the Bank portfolio at 57 percent 
of the total in FY05.  It grew by about three percent in FY05 to $54.3 billion.  This is due to a 
significant increase in IBRD investment approvals, which stood at $9.1 billion at end FY05 
compared to $6.6 billion at end FY04 (Figure 2.2A).  The growth in investment approvals 
was concentrated in two Regions (SAR and ECA), affected all Networks and seven of the ten 
major sectors.  The bulk of the increase was concentrated in three countries (India, Turkey 
and Romania).  During the period FY00-FY05, IBRD investment approvals averaged about 
$6.6 billion a year compared to an average of about $12 billion per year during the period 
FY90-FY98.   
 
F
IGURE 
2.2
A
:
I
NVESTMENT  
A
PPROVALS  
(FY95
–05) 
 
0
2
4
6
8
10
12
14
16
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
A
m
o
u
n
t
(
U
S
$
B
i
l
l
i
o
n
)
IBRD
IDA
2.7 
The IBRD portfolio for Development Policy lending (Figure 2.2B) has increased 
from $6.8 billion in FY04 to $7.4 billion in FY05.  Although approvals have seen a modest 
decrease in FY05, to $4.3 billion, they remain close to their $4.7 billion per annum average 
between FY00 and FY05.  They were distributed amongst all Networks and major sectors.  
Two thirds of approvals were in the LCR Region and about half were concentrated in two 
countries (Brazil and Colombia).  Looking forward, overall IBRD approvals are expected to 
reach $12.5
–
14.5
billion a year during the period FY06
–
FY08. 
 
Page  15
Annual Report on Portfolio Performance FY05 
 
   5 
F
IGURE 
2.2
B
:
D
EVELOPMENT  
P
OLICY  
L
ENDING  
A
PPROVALS  
(FY95
–05) 
 
0
2
4
6
8
10
12
14
16
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
A
m
o
u
n
t
(
U
S
$
B
i
l
l
i
o
n
)
IBRD
IDA
2.8 
The increase in IBRD investment approvals is the result of the concurrent 
implementation of several initiatives.  The MIC Action Plan is facilitating the scaling-up of 
the Bank’s support for the development of Middle-Income Countries by progressively 
removing identified constraints to the Bank responding more effectively to specialized needs 
of these clients.  The modernization and simplification agenda is modifying the Bank’s 
approach and internal processes to improve the Bank’s ability to meet Borrower needs in a 
more timely and flexible manner.  The Infrastructure Action plan is revitalizing the Bank’s 
infrastructure business to support client demand to address unmet infrastructure investment 
needs and help meet broader development goals.  These initiatives are further discussed in 
paras. 2.12 to 2.17.  
 
IDA 
 AND  
T
RUST  
F
UND  
P
ORTFOLIOS
 
2.9 
The IDA 14 negotiations were successfully concluded during FY05, resulting in a 
total allocation of $32.0 billion that will be available to the world’s 81 poorest countries 
during the period FY06
–
FY08.  The IDA 14 allocation represents a sizable increase over the 
$23 billion IDA 13 replenishment that will help the Bank in supporting the global 
commitment to achieve Millenium Development Goals (MDG) targets.  IDA FY05 approvals 
were limited by the fact that the IDA 13 commitment authority was constrained towards the 
end of the fiscal year.  For this reason, and to ensure a smooth transition from IDA 13 to IDA 
14, the use of the conditional approval mechanism under the IDA 14 replenishment was 
authorized by the Board to finance FY05 IDA operations worth about $0.5 billion.   
 
2.10 
At about $38.9 billion, the FY05 IDA portfolio shows a small two percent decline 
over FY04 but remains above its FY00 level.  The ESSD IDA portfolio recorded a significant 
decline caused by a large volume of cancellations in the Rural Sector.  This was only 
partially offset by an increase in INF’s portfolio.  IDA FY05 approvals amount to $8.6 
billion, the second largest amount in IDA’s history after the $9.0 billion record achieved in 
Page  16
Annual Report on Portfolio Performance FY05 
 
   6 
FY04.
5
As in FY04, over three-quarters of IDA approvals were concentrated in two 
Regions
—Africa and South Asia.  While IDA approvals for all other Networks decreased, 
approvals for INF and Poverty Reduction and Economic Management Network (PREM) 
increased by about 11 and 30 percent, respectively, over FY04 levels.  Slightly over two-
thirds of IDA approvals were for investment lending and the remainder for development 
policy lending.  Looking forward, IDA approvals are expected to increase to about $9.5
–
$10.5 billion a year during the period FY06
–
FY08, a significant increase over the FY05 
level.    
 
2.11 
In addition to IBRD and IDA, the portfolio includes trust funds (GEF/Montreal 
Protocol) and special financing operations
6
which are fin
anced out of the Bank’s net income.  
Together, these represent net commitments of about $2.8 billion, or less than 3 percent of the 
total portfolio.  The GEF and Montreal Protocol each have net commitments of about $1.0 
billion.  Special financing operations have net commitments of about $0.8 billion.  Although 
these programs are small they satisfy demand in some areas where neither IBRD nor IDA 
funding can be used.   
 
I
MPLEMENTATION  OF  
MIC 
 
A
GENDA
 
2.12 
The focus in FY05 was on strengthening staff ability to respond to countries’ demand 
for financial support and for risk management support.  The following actions were 
implemented: 
 
·
With respect to lending, the Board authorized a two-year pilot program for 
the use of country environmental and social safeguard systems in Bank 
operations and approved a governance framework for the program (OP/BP 
4.00).  Pilot possibilities are under discussion in five MICs; 
 
·
Steps were taken to streamline the use of conditionality, including a guidance 
note to staff on the disciplined use of conditionality in investment and 
development policy.  An extensive review of conditionality was undertaken, 
resulting in best practice principles approved by the Development Committee 
in September 2005;   
 
·
With respect to risk management support, Treasury mainstreamed financial 
advisory services to up to 25 country teams.  TRE also expanded outreach to 
clients on the available menu of IBRD banking products (including loans and 
interest rates, currency, and commodity hedges) and financial services to 
manage risk; and 
 
5
An additional $0.5 billion was approved during FY05 under the conditional approval mechanism.  This 
amount is not included in FY05 IDA approval figures but will be included in the FY06 IDA approval 
figures.  
6
Examples of FY05 Special Financing operations included projects such as the Iraq Emergency School 
Construction & Rehabilitation project, the Iraq Community Infrastructure project and the Gaza II 
Emergency Water project. 
Page  17
Annual Report on Portfolio Performance FY05 
 
   7 
·
The first two IBRD local currency loans were approved by the Board and 
another eight such operations are under preparation.   
 
2.13 
While it is too early to fully assess the impact of the above actions it is clear that 
good progress has been made in implementing a large part of the MIC agenda.     
 
M
ODERNIZATION  AND  
S
IMPLIFICATION  
A
GENDA
 
2.14 
The Bank has continued to simplify its internal processes in order to improve its 
responsiveness to Borrowers’ needs.  Following the introduction of streamlined processes for 
simple and repeater projects in FY03, the implementation of the Modernization and 
Simplification agenda has resulted in two significant changes during FY05.  First, a new 
Implementation Status and Results Report (ISR) was introduced to replace and simplify the 
Project Supervision Report.  The ISR emphasizes the continuous use of results monitoring 
indicators and focuses on flagging critical project issues for management review and action.  
The new ISR was only introduced in January 2005.  While its design appears to be sound 
there is a need to familiarize staff with its use through continued guidance and training (see 
para 3.14).  Second, a new additional financing policy was introduced and became available 
for operations approved by the Board on or after June 1, 2005.  It enables the approval of 
incremental funds to an existing project within a processing time that is significantly less than 
what is required for a new operation. 
 
2.15 
These measures are beginning to have an impact.  During FY05, 44 simple and 
repeater operations were approved for an amount of $2.8 billion with a 10-month average 
elapsed time between project concept and board approval and an average preparation cost of 
$220,000.  This compares favorably with the 16 months average processing time and 
$450,000 preparation cost for all IBRD and IDA projects approved during FY05.  The most 
recent QAG review of Quality-at-Entry found that simple and repeater operations had not 
sacrificed quality to achieve time and cost savings.  The FY06 pipeline of simple and repeater 
projects is strong with 76 operations for a total commitment of $4.7 billion.  However, given 
the nature of these operations, it should be noted that only limited growth can be expected in 
the future.  A good start has been made with regard to additional financing as the first five 
such projects have been approved in June 2005 with a six month average elapsed time 
between project concept and board approval.  Also encouraging is the fact that the time 
elapsed between project concept and Board approval for IBRD and IDA investment 
operations has begun to decline Bank-wide from an average of 18 months in FY03 to 16 
months in FY05.  
 
I
NFRASTRUCTURE  
A
CTION  
P
LAN
 
2.16 
The Bank began the process of scaling-up lending in infrastructure through the launch 
of the Infrastructure Action Plan in July 2003.  As part of the Action Plan, the Bank sent clear 
signals to staff, clients and development partners on the centrality of infrastructure to the 
development agenda.  Analytical work and stand-alone policy advice have been a critical 
accompaniment to Bank lending as AAA spending is 14 percent higher in FY05 than in 
FY03.  The Bank has also expanded the variety of instruments which support infrastructure 
investment.  These include newer multi-sectoral lines of business such as trade and transport 
facilitation, housing services for the poor, integrated urban poverty reduction, and integrated 
Page  18
Annual Report on Portfolio Performance FY05 
 
   8 
local economic development, in addition to more traditional multi-sectoral lending such as 
rural infrastructure.   
 
2.17 
The impact of the action plan in FY05 is broad-based as lending has grown 
significantly in most sectors and themes as well as Regions.  Approvals have quadrupled for 
Urban Development.  This is partly the resu
lt of the fact that the Bank’s response to the 
Tsunami disaster was mostly through the Urban Sector.  Approvals have increased by over 
50 percent for Energy and Mining and Water Supply and Sanitation.  Approvals for transport 
declined somewhat in FY05 following a strong increase in FY04.  This was caused by 
constraints in IDA lending in Africa.  However, a significant rebound in transport approvals 
is expected in the next fiscal years.  It is expected that INF approvals will continue to grow 
by about $1.0 billion per year for the next two to three years, reaching about $10.0 billion a 
year.  An increase in business from all Regions is foreseen with a significant increase from 
the Africa Region. 
 
C
ANCELLATIONS
 
2.18 
About $2.5 billion was cancelled in FY05, significantly less than the $3.7 billion 
average for the period FY00
–
FY04.  FY05 cancellations declined for all Networks and 
Regions except for ESSD, SAR and LCR.  Cancellations in the Rural sector reached about 
$1.0 billion, almost tripling in volume over the $0.4 billion FY00
–
FY04 average.  This was 
partly caused by the need to cancel significant portions of two large projects, one in Mexico, 
the other in Indonesia.  There are two main factors which led to the cancellation of the 
Mexico project ($0.4 billion): i) lack of a national project coordination unit; and ii) lack of 
commitment by the implementing states.  A lesson here is that institutional mechanisms and 
project implementation arrangements need careful and early design
—the key implementation 
actors should have the incentives and capacity to implement a project—and the degree of 
borrower commitment needs to be realistically assessed upfront.  Another lesson is that the 
need for management oversight in this process is critical in order to ensure the efficient use of 
Bank resources.  Half of the Indonesia loan amount had to be cancelled as changes in 
government delayed project implementation.  During FY05, cancellations in India increased 
by 50 percent over the FY00
–
FY05 average and represented one quarter of Bank-wide 
cancellations.  The Region restructured and canceled parts of its existing India portfolio in 
order to fund a large Tsunami Emergency recovery operation.  To achieve the cancelled 
savings, fifteen existing IDA operations were restructured; in most cases the savings were 
realized from changes in foreign exchange rates.  
 
R
EGIONS  AND  
C
OUNTRIES
 
2.19 
Regional Trend.
 
Compared to FY04, net FY05 commitments have either increased 
or remained about constant in most Regions.  The EAP portfolio has continued to decline due 
to limited IBRD borrowing from China and lower than anticipated lending levels in the 
Philippines.  The LCR portfolio also shows a small decline.  However, the FY05 overall 
portfolio is still $21.2 billion (18 percent) smaller than the FY00 portfolio.  Africa is the only 
Region with a larger portfolio in FY05 than in FY00.   
 
Page  19
Annual Report on Portfolio Performance FY05 
 
   9 
F
IGURE 
2.3:
 
P
ORTFOLIO  
D
ISTRIBUTION  BY  
R
EGION  
(FY00, 
 
FY04 
 AND  
FY05) 
(By  Net  Commitments) 
 
0
10
20
30
40
AFR
EAP
ECA
LCR
MNA
SAR
A
m
o
u
n
t
(
U
S
$
B
i
l
l
i
o
n
)
FY00
FY04
FY05
2.20 
Portfolio Concentration
.
The FY05 portfolio includes operations in 127 countries, 
with a heavy concentration in the same eight countries as in FY04 (India, China, Turkey, 
Brazil, Argentina, Vietnam, Mexico and Indonesia) which account for about half of net 
BOX 2.1:   T
HE  
T
SUNAMI  
T
RAGEDY 
 
On December 26, 2004, the most powerful earthquake the world had seen in a 
generation caused a tsunami that struck several countries in the Indian Ocean Region
.
The size and magnitude of the tragedy was unprecedented and called for swift Bank 
response.   Within hours of the tragedy, Bank staff began working with the Governments 
of Indonesia, India, Sri Lanka and the Maldives to provide analytic and strategic 
assistance in planning for and managing the recovery 
 
Within a few months of the tragedy, the Bank made available $465 million to the 
Gov. of India, $150 million to the Gov. of Sri Lanka, $39 million to the Gov. of Indonesia 
and $14 million to the Gov. of th
e
Maldives.  In addition, the Bank became the trustee of 
the Indonesia Multi-
Donor Fund for Ache and Nias (MDF) which pools grant pledges of 
$532 million from 15 donors and under which 13 projects have been endorsed, of which 7 
are directly supervised by t
he Bank.  Most Bank assistance was for housing, roads, water 
supply, health, livelihood support, capacity building in housing reconstruction as well as 
coastal management and project implementation.   
 
Reconstruction involves more than rebuilding roads, ho
mes, schools and health 
clinics.  It is also about rebuilding people’s lives so that they can regain their livelihoods 
and heal their emotional wounds.  A year after the tragedy and despite setbacks and many 
difficulties significant progress has been achie
ved in Tsunami reconstruction.   However, 
this is only the beginning of a complex reconstruction and recovery process and much 
work still lies ahead as the reconstruction effort is now entering its second  (and arguably 
more difficult) year.   At this time
,
it is too early to tell whether the recovery will be a 
Page  20
Annual Report on Portfolio Performance FY05 
 
   10 
commitments.
7
In comparison, about 70 of the smallest borrowers account for only 5 percent 
of the commitments in the portfolio.  Despite the large disparity in the share of net 
commitments, each of the two groups (the eight largest and the 70 smallest) account for about 
20 percent of the portfolio in terms of number of projects.  This illustrates the adaptability of 
the Bank lending program to the diverse needs, interests and absorptive capacities of different 
borrowers.  In FY05 the Bank-wide average new loan/credit size, at about $74 million, was 
about three percent lower than in FY04.  The decline can be found in all Regions, with the 
exception of SAR where several unusually large loans/credits were approved in FY05.  
 
2.21 
Portfolio Trend by Country Groupings.  
The portfolio with the largest decline (52 
percent) over the past five years concerns the group of countries classified as Investment 
Grade (IG) (Table 2.2).  These countries are considered good performers and have a portfolio 
with a high, 86 percent satisfactory rating for outcomes during the period FY00
–
FY05.  
 
2.22 
The IBRD Only portfolio has decreased by about 16 percent over its FY00 level.  
However, it should be noted that it shows a 12 percent recovery over its FY04 level.  As 
noted in Chapter III, while unsatisfactory outcomes have remained constant at 22 percent, 
riskiness shows improvement from 19 percent in FY04 to 16 percent in FY05.  
 
2.23 
China and India have the two largest portfolios.  Similarly to the IG country portfolio, 
China’s portfolio has declined by 38 percent during the period FY00
–
FY05 and by about 7 
percent in FY05.  Approvals for China have also declined by over a third during the period 
FY00
–
FY05 and by 13 percent in FY05 although the number of projects approved has 
increased in FY04 and FY05.  There are two main reasons for these declines.  First, since 
FY99, China is no longer eligible for IDA lending and has been reluctant to borrow on IBRD 
terms to finance operations in the social sectors.  Second, for debt management reasons, 
China has capped IBRD borrowing at $1.5 billion per year.  It is anticipated that the China 
portfolio will further decline as a number of essentially completed projects were extended 
during the SARS epidemic to enable unutilized committed funds under these projects to 
finance the SARS emergency program.  As a result, the current portfolio is somewhat 
artificially high and will further reduce in size as those projects close. 
 
7
These largest borrowers also represent about three-
quarters of the total population of the Bank’s Part II 
member countries and a similar share of the world’s absolute poor.  
BOX 2.2:   A 
 
D
IVERSE   
P
ORTFOLIO 
 
The largest loan approved during FY05 is the Brazil Programmatic Fiscal Reform 
Loan -
Social Security Reform for a total amount of $658.3 million.  It supports a set of 
critical policy actions that the G
overnment has recently implemented to improve the fiscal 
sustainability and social equity of the pension system. 
 
In contrast, the smallest credit approved during FY05 is the Tonga Education 
Support credit for a total amount of $1.0 million which supports 
the implementation of the 
first 5 years of the 15 year Education  Policy Framework prepared by the Government.  
The credit focuses on improving the quality of primary and secondary education.
Page  21
Annual Report on Portfolio Performance FY05 
 
   11 
2.24 
India’s portfolio increased by seven percent in FY05 but still shows a three percent 
decline during the period FY00
–
FY05.  The FY05 increase would have been larger had there 
not been a scarcity of IDA 13 funding.  Approvals doubled during FY05 and there are further 
encouraging signs for the future as strong lending can be expected from continued substantial 
support to Infrastructure, Education and Health.   
 
2.25 
Two other client groupings are IDA only and Blend countries.  The IDA only 
portfolio has grown by 11 percent during the period FY00
–
FY05 and shows improving 
performance as its unsatisfactory outcome ratings have declined from 27 percent reported in 
the previous ARPP to 23 percent in FY05.  In contrast, the Blend countries portfolio has 
continued to decrease in FY05 and shows a 36 percent decline during the period FY00
–
FY05.  This decline is primarily caused by the decline of the Indonesia portfolio.  
Unsatisfactory outcomes remain high at 24 percent showing limited improvement over the 25 
percent reported in the previous ARPP.      
 
2.26 
The other group of countries showing a significant change in portfolio in the last five 
years includes the 25 Low Income Countries under Stress (LICUS).  These countries cover a 
spectrum of fragility, including countries with deteriorating governance, those in prolonged 
political crisis, post-conflict transition countries and those in a gradual but still uncertain 
reform process.  While the size of the LICUS portfolio has remained constant in FY05, it has 
expanded by 127 percent in the last five years.  This increase is mostly caused by the large 
number of post conflict operations approved under IDA 13.  Table 2.2 shows that the IEG 
outcome rating is 60 percent satisfactory for LICUS, significantly lower than for any other 
group and lower than the 78 percent Bank average.  More recently there has been an 
improving trend in quality at entry.  IEG is currently conducting an in-depth review of the 
LICUS program and will present its findings later this year. 
 
T
ABLE 
2.2:
 
P
ORTFOLIO  BY  
C
LIENT  
G
ROUPING  
(FY00, 
 
FY04 
 AND  
FY05) 
 
IBRD Investment Grade
22.5
12.0
10.9
-52
9
15
China
19.2
12.9
12.0
-38
4
10
IBRD Only (Others)
31.0
23.3
26.0
-16
16
21
India
13.1
12.0
12.8
-3
9
19
Blend
8.3
5.8
5.3
-36
12
25
IDA Only
20.6
23.3
22.8
11
17
24
Licus
2.5
5.3
5.7
127
26
39
Multi-Country
0.1
0.5
0.7
816
11
22
Bank-wide
117.3
95.2
96.1
-18
13
22
Commitment (US$ Billion)
FY00
FY04
FY05
FY05 % 
Commit 
At Risk
%
Change 
FY 00-05
FY01-05 
Unsat 
Outcome %
Source: Business Warehouse 
 
Note: Client groupings are mutually exclusive.  IBRD Only grouping excludes IBRD 
 
Investment Grade and China; Blend grouping excludes India; and IDA Only grouping  
 
excludes LICUS. 
 
2.27 
Issues related to aid effectiveness in LICUS are receiving significant attention from 
both the Bank and the international community.  In FY05, the Bank co-sponsored (with the 
Organization for Economic Cooperation and Development (OECD)/DAC, the EC and 
Page  22
Annual Report on Portfolio Performance FY05 
 
   12 
UNDP) a Senior Level Forum on aid effectiveness in Fragile States to discuss aid allocation, 
donor coordination, donor policy coherence, effective service delivery and improved aid 
instruments.  Participants agreed to develop a set of Principles for Good International 
Engagement in Fragile States.  These principles reflect a broad consensus that state-building 
is the central objective in fragile states, and that effective donor programs require integrated 
approaches, fast and flexible responses and long-term engagement.  Participants further 
agreed to pilot these principles in a number of countries.  Pilots are currently underway in the 
Democratic Republic of Congo, Haiti, Guinea-Bissau, Nepal, Somalia, Sudan, Yemen and 
Zimbabwe.   
 
2.28 IEG
 is conducting an evaluation of the Bank’s support to LICUS in the post-2002 
period after the adoption by the Bank of its LICUS initiative.  This evaluation will identify 
lessons from early LICUS implementation experience with a view to feeding into further 
LICUS strategy development by the Bank.  This evaluation will inform the Bank’s FY07 
Comprehensive Review of LICUS.    
 
N
ETWORKS
,
S
ECTORS  AND  
T
HEMES 
 
2.29 
The Networks with the largest portfolio remain INF, HDN and ESSD (Figure 2.4).  
Together, they account for about 88 percent of the total.  The INF portfolio is the largest, 
representing 45 percent.  INF is also the only Network with a significant increase in net 
commitments ($3.2 billion) in FY05.  The Finance Network (FSE) and ESSD have seen their 
portfolio continue to decline in FY05.  The total FY05 portfolio remains lower than FY00 
levels for all Networks. 
 
2.30 
FY05 approvals for INF and ESSD have significantly increased (by $2.1 billion and 
$1.7 billion, respectively) while approvals for all other Networks have declined.  Both 
Networks had prepared action plans to reverse their decline in approvals.  The action plan for 
INF has been successful in reversing the decline in approvals as well as in reversing the 
decline in active portfolio.  For the first time in several years, new portfolio entries have been 
larger than portfolio exits resulting in an increase in active portfolio. 
 
F
IGURE 
2.4:
 
P
ORTFOLIO  
D
ISTRIBUTION  BY  
N
ETWORK  
(FY00, 
 
FY04 
 AND  
FY05) 
(By  Net  Commitments) 
 
0
10
20
30
40
50
60
ESSD
FSE
HDN
INF
PREM
PSDN
A
m
o
u
n
t
(
U
S
$
B
i
l
l
i
o
n
)
FY00
FY04
FY05
Page  23
Annual Report on Portfolio Performance FY05 
 
   13 
2.31 
Within the ESSD Network, Environment, Rural and Social Development all show 
significant increases in approvals during FY05.  
However, ESSD’s active portfolio declined 
by about $1.0 billion, continuing the trend recorded in previous years, due in part to the large 
volume of cancellations in the Rural sector (see para 2.18). 
 
2.32 
ESSD’s action plan primarily focused on reinvigorating the Bank’s programs in 
Agriculture and Rural Development (ARD) as spelled out in its strategy, “Reaching the Rural 
Poor.”  Results of this action plan are positive, to date, but its effectiveness in sustaining an 
increased level of approvals in Agriculture is uncertain.  Approvals did increase in FY05 but 
the sustainability of this increase over time is uncertain as it results from the approval of two 
large agriculture projects in India.   
 
2.33 
The Finance sector as well as the FSE Network both show continuing decline in net 
commitments while approvals are not increasing.  Two factors explain this situation.  First, 
finance sector lending is to a large extent driven by the cycle of financial crisis.  The decline 
in commitments only highlights the fact that there has been relative stability in the finance 
sector in the past four years thus limiting the need for increased lending.  Second, some of the 
finance sector new lending has appropriately migrated to the International Finance 
Corporation (IFC).  
 
2.34 
In terms of themes, the share of the portfolio for Human Development, Public Sector 
Governance, Social Development and Social Protection has continued to grow confirming a 
steady shift of the portfolio towards these areas during the period FY00
–
FY05 (Table 2.3).  
The share of the portfolio for Financial and Private Sector Development has experienced the 
largest decline (from 22 percent to 17 percent) while the share of Rural Development and 
Urban Development has basically remained stable at 14 percent and 11 percent, respectively, 
during the same period. 
 
Page  24
Annual Report on Portfolio Performance FY05 
 
   14 
T
ABLE 
2.3:
 
P
ORTFOLIO  BY  
S
ECTOR  OF  
F
OCUS  AND  
T
HEME  
(FY00 
 AND  
FY05)
 
(Commitments,  %  Share) 
 
Sector/Theme
FY00
FY05
Sector
 
Agriculture, fishing, and forestry
9
9
 
Education
9
9
 
Energy and mining
14
9
 
Finance
6
5
 
Health and other social services
12
14
 
Industry and trade
5
5
 
Information and communications
1
1
 
Public Administration, Law, and Justice
16
17
 
Transportation
17
21
 
Water, sanitation and flood protection
10
10
 
Sector Total
100
100
Theme
 
Economic management
3
1
 
Environment and natural resources management
15
13
 
Financial and private sector development
22
17
 
Human development
11
14
 
Public sector governance
8
8
 
Rule of law
1
2
 
Rural development
13
14
 
Social dev/gender/inclusion
6
9
 
Social protection and risk management
6
7
 
Trade and integration
2
4
 
Urban development
12
11
 
Theme Total
100
100
2.35 
Multi-Sector Operations.  
Bank systems now allow the tracking of multi-sector 
operations and show that the number of these operations continued to grow in FY05.  The 
share of such operations covering more than three sector Boards increased from 37 percent in 
FY01 to 44 percent in FY05.  PRSCs have typically tended to cover about twice as many 
sector Boards than other DPL operations.  Although data is not readily available for all sector 
Boards, it is clear that some sector Boards (Finance and Water & Sanitation for example ) 
now have close to half of their volume of approvals embedded in components of multi-sector 
operations, under the responsibility of regional units that are not members of the 
corresponding sector Board.  This raises concerns about consistency of approach, adequacy 
of staff skills and quality control.  A recent IEG review of Bank assistance for Financial 
Sector Reform found that outcomes under the responsibility of regional units that were not 
under the Financial Sector Board were significantly lower than outcomes under the 
responsibility of units under the Financial Sector Board.  Several reviews of the Water 
Supply and Sanitation sector have pointed out the lower quality of water components in 
multi-sectoral operations.  This issue is further discussed in Chapter III.       
 
I
NSTRUMENTS
 
2.36 
The Bank’s lending portfolio is divided into either 
Investment
 or 
Development Policy 
operations.  The portfolio continues to be dominated by Investment lending which represents 
about 91 percent of net commitments.  Development Policy operations account for about 9 
percent of net commitments and represent 29 percent of approvals in value in FY05.  The 
Page  25
Annual Report on Portfolio Performance FY05 
 
   15 
apparent dominance of investment lending is, however, somewhat misleading.  Since the 
ARPP portfolio is a snapshot of loans active at the end of the fiscal year, many fast-
disbursing loans, particularly single tranche Development Policy Loans, are no longer 
accounted for in the portfolio.  In such cases comparing the total new approvals in a fiscal 
year may provide a better basis of comparison.   
 
2.37 
Specific Investment Loans (SILs) 
continue to be the most widely-used instrument, 
representing about 68 percent of net commitments.  
Adaptable Program Loans (APLs)
 have 
continued their steady growth from about 2 percent of the portfolio in FY00 to 11 percent of 
the portfolio in FY05.  This confirms a growing recognition that longer-term instruments are 
required to achieve sustained changes in institutions, organizations or behaviors.  However, 
the transition to APL follow-on phases has been slower than anticipated due to either closing-
date extensions or exits from APLs by switching to other Bank instruments or financing by 
government or other donor resources.  As a result expectations regarding long-term 
commitment of resources have not materialized.  In addition, expectations regarding lower 
initial costs and flexibility in implementation have not materialized as well.  
Emergency 
Recovery Loans (ERLs)
 have continued to grow although at a slower pace from 2 percent of 
the portfolio in FY00 to about 5 percent in FY05.  
 
2.38 In 
contrast, 
Learning and Innovation Loans (LILs) 
have continued their decline in 
both number of operations (from a peak of 87 in FY03 to 47 in FY05) and commitments 
(from $0.4 billion in FY03 to $0.2 billion in FY05).  From a high of 29 new entries in the 
portfolio in FY00, the number of new LILs has progressively decreased to 17 in FY02, four 
in FY04 and zero in FY05.  A recently completed review of LILs has concluded that this 
decline was caused by strong process disincentives internal to the Bank coupled with 
disincentives to the borrowers arising from the relatively high costs LILs impose.  The 
Committee on Development Effectiveness (CODE) has recently agreed to retire the LIL as an 
instrument but that the learning and innovation concepts are mainstreamed through small 
investment lending operations in the future.      
 
Page  26
Annual Report on Portfolio Performance FY05 
 
   16 
T
ABLE 
2.4:
 
P
ORTFOLIO  BY  
L
ENDING  
I
NSTRUMENT  
(FY04 
 AND  
FY05) 
(Amounts  in  US$  Billion) 
 
F
Y04
FY05
FY04
FY05
Investment
S
IL
Specific Investment Loan
957
940
67.3
65.2
APL
Adaptable Program Loan
161
178
8.1
10.4
T
AL
Technical Assistance Loan
123
131
2.1
2.2
L
IL
Learning and Innovation Loan
67
47
0.3
0.2
S
IM
Sectoral Investment and Maintenance
37
36
2.7
2.7
E
RL
Emergency Recovery Loan
54
63
4.4
4.9
FIL
F
inancial Intermediary Loan
19
17
1.9
1.8
Sub Total Investment
1,418
1,412
86.8
87.4
A
djustment
DPL
Development Policy Lending
0
13
0.0
1.7
S
AD
Sector Adjustment
20
16
4.1
3.6
SAL
S
tructural Adjustment Lending
19
14
2.3
1.6
PSL
Programatic Structural Adj Loan
5
6
1.4
1.7
P
RC
Poverty Reduction Support Credit
5
2
0.3
0.1
SSL
Special Structural Adjustment Lending
2
0
0.3
0.0
Sub Total Adjustment
51
51
8.3
8.7
Total Investment + Adjustment
1,469
1,463
95.2
96.1
No.
Amount
L
ending Instrument
Note: A number of adjustment operations were approved prior to the introduction of DPL.
 
2.39 
The fast-disbursing nature of 
Development Policy Lending
 is especially attractive to 
borrowers to meet short-term cash flow needs in a financial crisis.  As previously shown in 
Figure 2.2B, Development Policy lending fluctuates significantly from year to year 
depending on short-term financial needs; in years of financial crisis such as FY99 and FY02, 
it represented about half of the total annual approvals.
 
In FY05, Development Policy lending
 
only accounted for 18 percent of total approvals in number and about 29 percent of new 
approvals in value. 
 
M
AIN  
C
ONCLUSIONS  AND  
R
ECOMMENDATIONS
 
2.40 
In summary, the main conclusions and recommendations are: 
 
·
The active portfolio has increased for the first time in several years, reversing 
the trend of decline noted in past ARPPs.  This is mostly due to a strong 
increase in IBRD investment approvals.  The INF action plan is achieving its 
objectives as INF is the only Network with an increase in active portfolio and 
a
strong increase in approvals.  Although still at an early stage of 
implementation, a large part of the MIC action plan has been implemented in 
FY05.  Measures implemented under the modernization and simplification 
agenda are starting to have an impact as there is a strong portfolio of simple 
and repeater projects in FY06 and as project processing time and costs are 
decreasing; 
 
·
Portfolio composition has continued to shift from countries with a higher 
income level to countries with a lower income level.  The most significant 
Page  27
Annual Report on Portfolio Performance FY05 
 
   17 
decline during FY00
–
FY05 is for IBRD Investment Grade countries (-52 
percent), China (-38 percent), Blend countries (-36 percent), and IBRD Only 
(-16 percent).  In contrast, during the same period, the LICUS portfolio has 
increased by 127 percent; and 
 
·
Given the growing volume of Guarantees, it is recommended that they be 
subjected to independent monitoring and evaluation. 
 
Page  28
Annual Report on Portfolio Performance FY05 
 
   18 
III.    PORTFOLIO PERFORMANCE 
 
3.1 
The last Annual Report on Portfolio Performance noted that the marked decline in the 
proportion of Development Outcomes rated by IEG as satisfactory
8
in operations that exited 
the portfolio in FY03 had been reversed.  This was based on an analysis of about half of 
FY04 exits.  The more complete data confirms that the decline in portfolio performance has 
indeed been reversed.  There is substantial year-to-year volatility and outcome trends are best 
analyzed using three year moving averages.  The current data shows an improvement in the 
three year average from 77 percent in FY04 to 79 percent in FY05.  The average, weighted 
by disbursements, is higher at about 83 percent due to the effect of better performing larger 
countries such as China and India.  The chapter also reviews relative regional and network 
performances on Development Outcomes followed by a review of contributory factors and 
indicators. 
 
E
VOLUTION  OF  
O
UTCOMES
 
3.2 
The Development Outcome of operations exiting the Bank’s portfolio and found 
satisfactory by IEG has shown a remarkable recovery during the second half of the 1990s 
(see Figure 3.1).  This followed a period of decline during the1980s and the early 1990s.  In 
FY95 about one in three operations exited the portfolio with unsatisfactory outcomes.  Since 
then the proportion of operations that reached satisfactory outcomes has steadily improved to 
a
level of about 79 percent in FY05, based on a three year moving average.  Should the 
current trends continue, satisfactory Development Outcomes will increase to the 80 percent 
plus range by FY2006. 
 
F
IGURE 
3.1:
 
P
ROPORTION  OF  
O
PERATIONS  WITH  
S
ATISFACTORY  
O
UTCOMES  
(FY80
–05) 
 
50
55
60
65
70
75
80
85
90
F
Y
8
0
F
Y
8
1
F
Y
8
2
F
Y
8
3
F
Y
8
4
F
Y
8
5
F
Y
8
6
F
Y
8
7
F
Y
8
8
F
Y
8
9
F
Y
9
0
F
Y
9
1
F
Y
9
2
F
Y
9
3
F
Y
9
4
F
Y
9
5
F
Y
9
6
F
Y
9
7
F
Y
9
8
F
Y
9
9
F
Y
0
0
F
Y
0
1
F
Y
0
2
F
Y
0
3
F
Y
0
4
F
Y
0
5
P
e
r
c
e
n
t
3
Year Moving Average % Sat
O
S
Source:  IEG except for FY05 which is a QAG projection. 
 
3.3 
A breakdown of the Bank-wide outcomes by Region for the period FY02
–
FY05 
(Figure 3.2) shows substantial variations across Regions.  Four regions (ECA, LCR, EAP and 
8
Includes all categories rated Moderately Satisfactory or better by IEG. 
Page  29
Annual Report on Portfolio Performance FY05 
 
   19 
SAR) have satisfactory Development Outcome performance ratings in 80 percent plus 
ranges.  The remaining two regions (AFR and MNA) are clustered around the 72 percent 
level, and need to improve their performance further.  The problems of AFR and MNA are 
partly a reflection of the fact that these regions also have more low CPIA countries with 
weaker institutional capacity, though quality-at-entry and quality of supervision are also 
contributory factors.  The Africa region has embarked on a portfolio improvement program 
(Annex 5), and this should help AFR to improve its satisfactory Development Outcome 
performance to 75 percent plus range.  MNA is trying to improve performance with good 
initial results in its Quality-at-Entry performance as shown by the latest QAG assessment.  In 
addition, most regions are managing risk by limiting the size of risky projects either through 
lower initial loan amounts for risky projects, or through later restructurings and cancellations 
if performance problems develop and persist.  This is reflected in disbursement weighted 
Development Outcome performance, which is now about 80% satisfactory for both AFR and 
MNA, and the trend shows improvements.  Only LCR has had problems on disbursement 
weighted Development Outcomes, which for LCR reduced slightly to 76% due mainly to 
poorer performance
9
of DPLs in LCR brought about by the economic crisis in Argentina.    
 
F
IGURE 
3.2:
 
O
UTCOMES  BY  
R
EGION
10
 
79
85
81
81
80
72
72
83
79
78
82
76
90
91
50
60
70
80
90
100
ECA
EAP
LCR
SAR
MNA
AFR
Bank-wide
P
e
r
c
e
n
t
S
a
t
i
s
f
a
c
t
o
r
y
Outcome % Sat
Outcome % Sat $
3.4 
With regard to performance by client groups, as mentioned earlier in Chapter II, the 
performance of the LICUS group of countries continues to be especially problematic with 
successful Development Outcome of about 60 percent according to IEG evaluations.  More 
recently there is an improving trend with successful Development Outcome of about 65 
percent in FY04.  IEG is currently conducting an in-depth review of the LICUS program and 
it intends to present the findings to the Board later this year. 
 
3.5 
A breakdown of Development Outcome data by Sector Boards (Figure 3.3) shows 
that Transport at 90 percent satisfactory Development Outcomes continues to have a high 
proportion of projects rated as Satisfactory by IEG, though sustainability is a concern in some 
9
Disbursement weighted Satisfactory performance for DPLs (71%) in LCR is much lower than that for 
Investments (82%). 
10
 
Outcomes by Regions are based on the most recent evaluations covering all projects closed in FY02-05. 
Page  30
Annual Report on Portfolio Performance FY05 
 
   20 
projects where maintenance becomes an issue after project completion due to weak budgetary 
and institutional capacity.   
 
F
IGURE 
3.3:
 
O
UTCOMES  BY  
S
ECTOR  
B
OARD
11
 
OUTCOMES % SAT BANKWIDE (79%)
66
68
71
80
8
0
82
83
84
91
73
76
79
7
9
50
60
70
80
90
100
TR
ED
SP
WS
EP
RDV
EMT
FSP
UD
PSG
ENV
HNP
PSD
P
e
r
c
e
n
t
S
a
t
i
s
f
a
c
t
o
r
y
Outcome % Sat
3.6 
In contrast several Sector Boards, such as Environment, Health, Public Sector 
Governance, and Private Sector Development have had Development Outcomes of less than 
75% satisfactory.  The quality-at-entry was often sited in completed evaluations as an issue.  
More recently, these Sector Boards and their regional staff have put emphasis on quality 
assurance with encouraging results.  It is recommended that these Sector Boards continue 
their effort to improve results further and for this purpose sectoral quality enhancement 
reviews should continue to be used to provide specific guidance and assistance to staff 
working under these Sector Boards.   
 
M
AIN  
F
ACTORS  
C
ONTRIBUTING  TO  
S
ATISFACTORY  
P
ROJECT  
O
UTCOMES
 
3.7 
An analysis of contributory factors was done based on the cohort of IEG ex-post 
evaluations of about 1000 projects.  The analysis shows that the strongest correlation of 
outcomes is with Borrower performance at implementation, regardless of interaction with 
other factors.  But Bank performance is also an important contributory factor as satisfactory 
Bank performance during supervision is likely to lead to better identification and mitigation 
of risks during implementation, thereby contributing to successful outcomes.  
 
3.8 
QAG has carried out seven assessments based on a randomly selected sample of 
projects for Quality-at-Entry (QEA1 to QEA7) and six assessments for Supervision (QSA1 to 
QSA6).  In order to show robust results at regional level, Table 3.1 combines the results from 
two contiguous assessments.  These assessments show that after initial improvements 
between QEA1 and QEA4 and between QSA1 and QSA4 improvements in quality have 
stabilized at about 90 percent. 
 
11
 
Outcomes by Sector Boards are based on the most recent evaluations covering all projects closed in 
FY02-05. 
Page  31
Annual Report on Portfolio Performance FY05 
 
   21 
T
ABLE 
3.1:
 
T
RENDS  IN  
Q
UALITY
-
AT
-E
NTRY  AND  
S
UPERVISION 
 
(FY97
–98, 
 
FY99–02 
 AND  
FY03–05) 
 
FY97-98
FY99-02
FY03-05
FY97-98
FY99-00
FY01-04
AFR
71
85
85
60
80
84
EAP
97
88
90
69
90
95
ECA
81
89
96
85
91
88
LCR
98
100
91
71
90
99
MNA
63
96
78
71
95
82
SAR
86
87
96
74
82
85
Bank-wide
84
90
90
69
87
90
Quality of Supervision
Region
Quality-at-Entry
3.9 
The more detailed regional quality data shows that several regions have improved 
performance and (EAP, ECA, LCR, and SAR) have reached satisfactory level in Quality-at-
Entry of more than 90 percent.  Similarly, two regions (EAP and LCR) have reached a level 
of 95 percent or more of satisfactory supervision effort after starting from levels around 70 
percent.  Several regions (LCR, MNA) have shown improvements more recently on quality-
at-entry assessments covering FY04-05, but based on a more limited sample size.  These 
results demonstrate that with strong effort the Quality of Supervision and Quality-at-Entry 
can be improved to a 90 percent plus satisfactory at region-wide level.   
 
3.10 
The recently completed QEA7 shows that: 
 
·
Overall quality has continued to improve and moderately satisfactory or 
better rating is now at 92 percent, and all regions excepting AFR are now 
close to or above Bank-wide target of 90 percent plus satisfactory; 
 
·
About a quarter of the sample is in the moderately satisfactory category, a 
rating introduced in QEA7, which was previously subsumed in the 
satisfactory category; 
 
·
The main issue in projects that are rated moderately satisfactory is readiness 
for implementation.  There is scope for further improving quality-at-entry by 
ensuring project readiness and implementation arrangements; 
 
·
Bank inputs and processes at 89 percent satisfactory can also be improved 
through better use of peer reviewers’ advice, and by improved 
documentation; and 
 
·
Simple and repeater operations, which are processed more rapidly, show 
comparable entry quality to others. 
 
Page  32
Annual Report on Portfolio Performance FY05 
 
   22 
3.11 
To improve Quality-at-Entry the following aspects need continued emphasis: 
 
·
Lower project complexity, especially in countries and sectors where 
institutional capacity is weak; 
 
·
Greater project readiness for implementation at entry, with implementation 
staffing, systems, and procedures in place prior to project launch;  
 
·
Improving the Borrower’s sense of  ownership of the project through broader 
dialogue and participation in project preparation process; and 
 
·
More attention to the design of a sound results framework and baseline 
surveys during project preparation.   
 
C
URRENT  
P
ORTFOLIO  
S
TATUS  AND  
I
NDICATORS
 
3.12 
Portfolio risk and status is currently measured through a system of risk flags and 
indicators which are described in Annex 3 and in Table 3.2 of the Statistical Appendix 
(Volume II).  The portfolio management and reporting system can provide real-time 
information to Bank management about implementation progress and potential risks to 
achieving satisfactory development outcomes.  The early warning system allows the Bank an 
opportunity to take corrective actions in cooperation with borrowers.  These actions include 
more intensive supervision and project restructuring to mitigate risks and improve project 
status and cancellations when improvements are not feasible so as to reduce exposure.  
However, the portfolio monitoring system does not work very well if there is a lack of candor 
in reporting problems and risk.  The realism of risk ratings in FY02 was low at only 59 
percent which was significantly below the corporate target of about 70 percent.  Since then 
Regional management and quality teams have taken action to improve the realism of ratings 
which has improved to about 80 percent in FY04–05 (Table 3.2).  
 
T
ABLE 
3.2:
 
P
ORTFOLIO  
S
TATUS  
I
NDICATORS  BY  
R
EGION  AND  
N
ETWORK  
 
(FY04 
 AND  
FY05) 
 
FY04
FY05
FY04
FY05
FY04
FY05
FY04
FY05
Region
AFR
22
28
19
26
65
72
80
78
EAP
9
6
7
4
95
86
80
80
ECA
17
9
17
9
91
73
68
94
LCR
16
20
19
20
85
82
88
76
MNA
15
13
8
8
89
87
88
75
SAR
13
12
20
10
90
89
89
89
Network
ESSD
15
15
16
13
86
80
84
84
FSE
11
12
7
21
67
83
91
75
HDN
18
19
18
16
83
80
87
84
INF
15
14
15
9
81
72
76
80
PREM
21
20
18
25
81
76
84
76
PSDN
18
23
15
19
67
86
91
100
Bank-wide
16
16
16
13
82
78
83
82
Proj. at Risk (%)
Commit. at Risk (%)
Realism (%)
Proactivity (%)
Region/ Network
Page  33
Annual Report on Portfolio Performance FY05 
 
   23 
3.13 
While overall the realism of ratings has stabilized around 80 percent in the last two 
years, there are still challenges in some regions and networks (Table 3.2).  This is especially 
so in the Infrastructure network where the realism of portfolio status ratings has declined by 
nine percentage points to a level of 72 percent which is now the lowest amongst all networks.  
This decline in realism of risk rating coincides with the increase in new approvals which has 
been quite impressive for the Infrastructure network as reported earlier in Chapter 2, and it 
raises some concerns about relative balance between attention to new approvals and portfolio 
management.  The infrastructure network also reports a significant decline in commitments at 
risk by six percentage points (highest amongst networks), but combined with the decline in 
realism of ratings, it raises questions about the candor of risk reporting.    
 
3.14 
Realism ratings now exceed 80 percent in all regions except Africa and ECA.  The 
Africa region has traditionally had problems with realism of portfolio reporting.  During 
FY05, the region has made a determined effort to encourage candor in risk reporting through 
improved managerial oversight and also through improved resource allocation for risky 
projects.  This has resulted in a seven percentage point improvement in realism rating for the 
Africa Region.  The ECA Region, in contrast, has seen significant decline in the realism 
rating by almost 20 percentage points.  This also coincides with a rather sharp decline by 
almost 50 percent in the projects and commitments at risk for ECA which raises some 
questions regarding robustness of risk reporting by task teams and managerial supervision of 
task team ratings.  The realism of ratings in EAP has also shown some decline though less 
than ECA.  Country portfolio risk ratings are currently used in IDA allocation formula and 
this provides disincentives for candor of risk rating.  A review of realism of ratings by client 
category (Volume II, Table 3.8) shows that the realism of ratings of IDA only countries 
declined by ten percentage points in FY05 and it is now seven percentage points below Bank-
wide average.  The LICUS country grouping which is also dependent solely on IDA funding 
for new approvals, also shows rather low realism rating of about 58 percent.    
 
3.15 
Effectively addressing previously identified risks in the active portfolio in a timely 
manner is measured by the proactivity indicator (Table 3.2).  Overall for the Bank, this 
indicator has been fairly stable at just over 80 percent, which is above the current corporate 
target.  ECA has shown a rather steep improvement in proactivity indicator by 26 percentage 
points in FY05.  However the utility of this indicator is compromised if there is a lack of 
realism or candor in portfolio ratings due to either an under reporting of risks or due to a 
premature upgrading of risky projects.  ECA is now trying to focus on improving both the 
realism and proactivity through more managerial attention and ROC review of risky 
portfolios.  In contrast to LCR and MNA show reductions in proactivity indicators by about 
12 percentage points but in a context of fairly high realism rating.  Both regions have some 
countries where persistent macroeconomic problems and political/security issues are delaying 
resolution of portfolio problems.  Amongst the networks the three largest, ESSD, INF, and 
HDN, show fairly stable proactivity indicators of about 80 percent.  The remaining three 
networks account for only 12 percent of portfolio size and as is true for smaller sized 
portfolios, they show greater volatility. 
 
P
ORTFOLIO  
R
ISKS  AND  
C
ANDOR  OF  
R
ATINGS 
 
3.16 
Overall the portfolio risk has been quite stable at about 16 percent.  However because 
of a concern about the realism and candor of ratings, a special analysis of the candor of risk 
Page  34
Annual Report on Portfolio Performance FY05 
 
   24 
ratings of a sample of 100 projects was undertaken by QAG.
1
2
The main conclusions from 
the analysis are as follows: 
 
·
Twenty-two percent of the FY05 portfolio at risk of not meeting its 
Development Objectives.  In contrast, the regional ratings show that only 
about 7 percent of projects are classified as problematic on DO and an 
additional 9 percent of the portfolio is rated as having implementation 
problems (IP Unsatisfactory), and being potentially at risk of not meeting 
objectives, for a total of 16 percent of the portfolio classified as at risk.  This 
means about one-quarter  at-risk of the risky portfolio is currently not 
identified by regional staff as risky and therefore it does not get the resources 
and attention that it deserves to work out problem areas; 
 
·
The gap between QAG and regional risk assessments seems highest in HDN 
and INF amongst networks, and for AFR and EAP regions; 
 
·
Realism ratings at about 58 percent were especially low for the LICUS 
country grouping (Volume II, Table 3.8);    
 
·
Task teams do not appear to be fully familiar with the new Implementation 
Status and Results Report, which was introduced in 2005.  More training and 
guidance should be provided to TTLs, especially in lower performing 
Regions and Networks; and 
 
·
Discretionary risk flags such as Procurement, Legal, M&E etc. are under-used 
and the ISR review and sign-off system by sector managers is not assuring 
that risk ratings are candidly reported.  Sector managers are currently 
overloaded and this creates difficulties in providing adequate review of ISRs 
and guidance to TTLs.  Sector Departments should consider providing 
additional quality support for Sector managers in their portfolio review 
function. 
 
P
ROJECT  
P
ERFORMANCE  
R
ISKS  
D
UE  TO  
G
OVERNANCE  
F
ACTORS
 
3.17   
Fraud 
and
 
corruption in implementing projects financed by the Bank and 
implemented by borrowers pose a special performance risk.  This is especially so in countries 
where institutions are weak.  Analysis of the data from the 
Bank’s Institutional Integrity 
Department shows that the level of fraud and corruption varies by region, country and sector, 
with the South Asia region accounting for the largest share of cases.
13
 
Worldwide, the Water, 
Sanitation and Flood Protection sector and the Health and Other Social Services sector have 
accounted for the largest number of allegations.  Recent proactive work through Detailed 
Implementation Reviews has provided a much wider insight into the problems of fraud and 
12
 
ARPP Working Paper on 
A
Review of Risk Ratings in ISRs
,
Shetty & Swartzendruber, October 20, 
2005. 
13
 
The caseload of the Bank’s Institutional Integrity (INT) Department reflects where fraud and 
corruption allegations are reported, and not necessarily where they are most prevalent or likely to 
occur.   
Page  35
Annual Report on Portfolio Performance FY05 
 
   25 
corruption.  As Regions and INT review more countries with substantial loan portfolios and 
take a more proactive approach to fraud and corruption issues, such as through additional 
Detailed Implementation Reviews, they will be able to present a more accurate assessment of 
such risks.  In an effort to address proactively, INT has launched a Voluntary Disclosure 
Program in 2005.  The program will provide incentives to firms to confidentially volunteer 
information about their involvement with fraud or corruption on Bank-financed projects in 
exchange for reduced sanctions.  The detailed implementation reviews done by INT and 
Regions suggest the need for better monitoring and greater controls in projects.  There is also 
a
need to review the findings of INT cases to see if the current procurement and financial 
management guidelines of the Bank need further elaboration or changes.  Some Networks, 
particularly Infrastructure, have already started a review.  In the context of the World Bank 
corporate mandate on combating corruption, the Infrastructure Vice presidency kicked-off an 
initiative last month to start monitoring and coordinating anti-corruption activities within 
various infrastructure sectors.  Similar initiatives are recommended in other networks. 
 
P
ORTFOLIO  
I
MPROVEMENT  
P
ROGRAM
 
3.18 Responding 
to 
concerns
 
about the quality of the Bank’s portfolio, in mid-1996 
management introduced an annual Portfolio Improvement Program, which encompasses all 
countries with a large percentage of their portfolio at risk (more than 33 percent of 
commitments or 50 percent of all projects), sectors at risk, and large projects (more than $200 
million in commitment) at risk.  Under this program, the regions prepare annual portfolio 
improvement plans and these are monitored centrally by management and reported in the 
ARPP.  The usefulness of these reviews is highlighted by the example provided in the Box.  
Substantial improvements have been registered in the quality of the portfolio in the nine year 
period (FY97
–
05)
since the program was launched.  This is reflected in the decline in the 
number of countries (from 26 in FY97 to 14 in FY 06), and the number of large projects 
(from 50 to just 10), and in Development Outcomes at exit as measured by IEG (Figure 3.1).   
Page  36
Annual Report on Portfolio Performance FY05 
 
   26 
3.19 
In an effort to assess the efficacy of the PIP and to identify the factors contributing to 
the quality improvements, QAG conducted an evaluation of the program.
14
 
Findings and 
relevant recommendations emerging from this evaluation are presented below.   
 
·
Number of PIP countries has declined over time.  
Although there has been 
an overall reduction in the number of countries at risk, outcome results for 
projects in countries appearing on the list continue to lag the Bank’s overall 
average of Development Outcomes by about nine percentage points;  
 
·
Number of repeater countries in the PIP.
 
Countries appearing on the PIP in 
two consecutive years accounted for two thirds of the total in FY04, 83 
percent in FY05 and 100 percent in FY06.  This would indicate an increase in 
the number of countries with entrenched systemic issues that are not readily 
susceptible to quick solutions.  Improved quality of CPPR including multi-
year action programs should be considered;  
 
·
Country Portfolio Performance Reviews (CPPR) for PIP Countries. 
 
These
 
reviews, which are expected to be conducted routinely for each PIP country, 
have generally been an effective tool in addressing both generic issues and 
project specific problems.  However, there are instances where no CPPR was 
held and others where the records are incomplete; and 
14
 
ARPP Working Paper, 
A
Review of Portfolio Improvement Program
,
Amnon Golan, October 19, 2005. 
BOX 3.1:   PROACTIVE 
 
CPPR
 
An impressive example of attention to implementation issues is presented by the 
joint annual Country Portfolio Performance Review between the
World Bank and the 
Government of India, which was initiated in 1996. Following the application of a Country 
Risk Flag in FY 01, these reviews resulted in early attention to restructuring of projects, 
reallocation of funds, timely cancellations where funds
could not be used, and improved 
project design to ensure readiness for implementation.  The meetings also agreed on a 
target for satisfactory project outcome (90 percent) to be confirmed by IEG, which is to be 
pursued through closer attention to project r
atings and clear and measurable action plans 
when problems are identified. As part of the process the GOI and the Bank also 
introduced detailed sector-
specific joint reviews with the implementing agencies and 
central line ministries, state-level multi-sect
or reviews, reviews of specific topics (e.g., 
projects at risk, slow disbursing projects), and an in
-
depth discussion during the annual 
joint CPPR of specific generic issues such as flow of funds, staffing of project agencies, 
procurement issues, arrangeme
nts for project audits, as well as a review of actions agreed 
in the previous year’s CPPR. These reviews were supplemented by active monitoring of 
projects at risk, projects in the first year of implementation, and at least a quarterly review 
of disburseme
nts.  The Bank also agreed to share with GOI a monthly report on portfolio 
indicators, and to include information on project ratings in all aide-
memoires. The impact 
has been to improve Satisfactory DO rating to 80 percent level in FY01-05 in contrast to a
Page  37
Annual Report on Portfolio Performance FY05 
 
   27 
·
PIP Projects are much more likely to fail. 
 To date IEG has evaluated 128 
PIP projects classified as Actual Problem Project and rated 60 percent of 
them as Unsatisfactory at exit.  Overall, 50 percent of PIP projects rated by 
IEG have received an unsatisfactory rating at exit, a level that is about double 
the Bank’s average for all projects.  This suggests that the PIP system has 
been effective in highlighting problems and risky projects but less effective in 
resolving them effectively.   
 
3.20 
In view of the effectiveness of the PIP system in early identification of Projects that 
are likely to fail, it is recommended that the PIP system as currently constituted should be 
retained.  At the same time, as success in resolving identified problems has been less 
satisfactory, there is a need for greater managerial attention to PIP countries and projects, and 
greater assistance to task teams in resolving problems.  In this context the use of strengthened 
country dialogue backed by participative CPPR and CAS with strengthened focus on 
Portfolio issues and results are recommended.  Several initiatives were launched in 2005 to 
address these issues including simplified guidelines for project restructuring, additional 
budget for work out of risky projects, simplified and more focused ISRs.  Following the 
implementation of these initiatives in 2005
–
06,
the impact of these initiatives should be 
reviewed to see if additional actions are needed. 
 
M
AIN  
C
ONCLUSIONS  AND  
R
ECOMMENDATIONS
 
3.21 
In summary, the main conclusions and recommendations are: 
 
·
Quality-at-Entry.  
While Quality-at-Entry has improved, there are still soft 
spots.  Especially low CPIA countries can  improve quality further through 
simpler and more focused project design adapted to weaker implementation 
capacity, and through greater attention to project readiness and sustainability; 
 
·
Quality of Supervision
 needs to be strengthened through greater candor in 
project rating, and through simplified guidelines for project restructuring.
 
The realism of rating of LICUS at 58 percent suggests the need for greater 
candor and realism in reporting on LICUS performance.  The candor and 
realism of ratings in AFR, ECA, amongst regions and the INF, amongst the 
Networks, needs to be improved; 
 
·
Sector Boards
 with less than 75 percent Development Outcome results are 
Environment, Health, Private Sector Development, and Public Sector 
Governance.
 
These Sector Boards have shown encouraging results in FY05.  
As there is substantial year-to-year fluctuation in results,
 
it would be prudent 
for these Sectors Boards to continue to address project design and staff skills 
issues in order to improve Development Outcomes to the 75 percent plus 
range on a consistent basis; 
·
Portfolio Risk 
is understated.  The ISR review function needs strengthening 
through additional support for over-burdened Sector managers and TTLs;   
 
Page  38
Annual Report on Portfolio Performance FY05 
 
   28 
·
The 
Portfolio Improvement Program 
 is good in highlighting problems, but 
follow-up actions need to be strengthened through improved CPPRs; and 
 
·
Fraud and Corruption Problems
 are affecting some projects as shown by 
detailed implementation reviews conducted in some risky countries.  This 
suggests that the Bank and Governments may need to identify additional 
instruments, or modify existing ones, to detect and mitigate these risks.  
OPCS, in close collaboration with INT should review the findings of INT 
cases to identify potential weaknesses in current fiduciary policies and 
propose remedial measures.
 
Page  39
Annual Report on Portfolio Performance FY05 
 
   29 
IV.   ANALYTICAL AND ADVISORY ACTIVITIES 
 
4.1 
This chapter provides a stocktaking of the Bank’s Analytical and Advisory 
Activities.
1
5
It focuses particularly on trends in AAA performance and on the quality and 
effectiveness of AAA in support of Bank program objectives.  It provides a basis for 
judgment about the current status and future direction of analytic and advisory services to 
clients as well as their quality and effectiveness.  The evidence first noted in FY04 of a shift 
from core diagnostic AAA towards more country-tailored products, including diagnostic 
studies at the sectoral level, has continued, as have improved coordination and greater 
cooperation among development partners in the performance of country AAA.  These 
positive trends favor greater alignment of AAA with CAS objectives and outcomes and with 
countries’ own development programs.  The movement towards improved partnerships opens 
up the promise of more efficiency in the use of aid resources for analytic and knowledge 
services. 
 
4.2 
As for the quality and effectiveness of Bank AAA, findings of independent quality 
assessments, as well as information from Bank-wide monitoring systems, point to several 
areas for improvement: (i) need to improve management oversight of country AAA; (ii) need 
to build coalitions for change through effective AAA dissemination; and (iii) need to address 
delays in AAA delivery. 
 
AAA 
 
P
ERFORMANCE  
B
ANK
-
WIDE
 
4.3 
AAA Deliveries by Type of Product.
 
In FY05, 1,045 AAA tasks were delivered at a 
cost of $174 million (Table 4.1).  ESW accounted for about 74 percent of this output by share 
of total AAA spending.  Within ESW, Reports were about 73 percent of the total, with Other 
ESW constituting the rest.  TA tasks delivered to client cost $46 million and represented 26 
percent of the total.  About 82 percent of all AAA tasks were carried out by Regional units, 
and the remainder by Network anchor units.  As indicated in Table 4.1, in FY05 a 
reclassification of output types under the ESW product line resulted in two changes in task 
recording and reporting: Regional Report is no longer a valid report type given that studies 
that focus on a Region can be identified in the country/region field in the system, and ESW 
contains now only Reports and Policy Notes.  As of FY05, Consultation/Country Dialogue 
and Conferences/Workshop outputs have been moved from ESW to TA. 
 
15
 
AAA product lines discussed in this chapter are ESW and TA.  Other AAA product lines not covered 
here include Donor and Aid Coordination, Research Services, World Development Report and Impact 
Evaluation.   
Page  40
Annual Report on Portfolio Performance FY05 
 
   30 
T
ABLE 
4.1:
 
AAA 
 BY  
M
AJOR  
T
YPE  
(FY03, 
 
FY04 
 AND  
FY05) 
 
FY03
FY04
FY05
FY03
FY04
FY05
ESW Reports
443
487
501
70
81
93
Core Diagnostic Reports
119
122
90
26
24
21
Other Diagnostic Reports
102
126
141
15
18
21
Advisory Reports
222
239
270
29
38
51
Other ESW
283
247
193
23
27
35
Policy Note
153
152
193
14
15
35
Other
130
95
NA
9
12
NA
All ESW Products
726
734
694
93
108
128
TA Output Types
Client Document Review
27
22
21
5
3
3
Institutional Development Plan
82
92
90
15
17
12
Knowledge-Sharing Forum
78
102
132
11
13
20
Model/Survey
22
13
13
2
2
2
"How-To" Guidance
129
74
95
16
9
10
All TA Products
338
303
351
49
43
46
All AAA Products
1,064
1,037
1,045
142
151
174
Deliveries (#)
Initiation to Delivery 
Costs (US$ Million)
Type of Report
Note: The increase in TA in FY05 reflects the reclassification of some Other ESW product lines 
(consultation/country dialogue and conference/ workshops) as TA. 
 
4.4 
Taking these adjustments in AAA product lines into account for comparability across 
years reveals the following profile for AAA delivery: the number of AAA tasks delivered to 
clients held approximately steady in FY05 as compared with FY04, though the overall cost of 
delivery of completed tasks increased by about 15 percent (Table 4.1).  ESW, which under 
the revised definition is essentially composed of Reports and Policy Notes, accounts for 
about 66 percent of AAA output by number of deliveries.  TA factors-in as the remainder of 
tasks delivered.   
 
4.5 
Within ESW, a shift continues to occur.  Less effort is now being devoted to Core 
Diagnostic Reports.  Much more attention is directed to Other Diagnostic Reports, typically 
sector work, and to Advisory Reports.
16
 
Policy Notes
—the average cost of which grew by 
over 80 percent in FY05—also show substantial increase in spending.  This shift reflects the 
increasing number of countries with a full set of recently completed core diagnostics.  It also 
derives, in part, from a change in ESW priorities in favor of more customized ESW, 
including sectoral analysis, in line with clients’ requests.  
16
 
Core diagnostic reports are: poverty assessments, country economic memoranda, Development Policy 
Review, public expenditure reviews, country procurement assessment reports, country financial 
accountability assessment reports, and Integrative Fiduciary Assessment.  
Page  41
Annual Report on Portfolio Performance FY05 
 
   31 
4.6 
While most AAA is delivered on a country basis, a growing share has been delivered 
on a global or regional basis
1
7
.
Global and regional AAA expenditures have been growing 
rapidly, from about $16.0 million in FY02 to $56.0 million in FY05, though part of the 
recorded increase is due to recent improvements in the recording of these tasks by Network 
anchors. Given the growing amounts spent on global and regional AAA, QAG has initiated a 
review of these activities at the global and regional level.  
 
4.7 
AAA Harmonization and Alignment.  
Greater tailoring of AAA services to 
individual country needs is further enhanced though partnerships arrangements that are, in 
turn, facilitated by PRSPs that contribute to setting AAA priorities.  Recent progress in AAA 
harmonization is most notable in joint analytic work to upgrade country fiduciary systems 
and capacities.  A share of the Country Financial Accountability Assessments (CFAAs) and 
some Country Procurement Assessment Reviews (CPARs) and Public Expenditure Reviews 
(PERs) have been done jointly with other partners.  Such progress in pooling and sharing 
knowledge reduces the need to undertake independent diagnostic work, helps avoid 
duplication and improves cost-effectiveness of scarce AAA resources, both human and 
financial. What is more, there is no evidence that jointly-produced AAA is of any less 
quality.  To the contrary, the insights and contributions of partners, as well as local expertise, 
add value to analytic products.     
 
4.8 
 In discussions at the Paris High-Level Forum on Aid Effectiveness, donors made a 
number of commitments to address problems inhibiting aid effectiveness and agreed on 
indicators to monitor progress with respect to ownership, alignment, harmonization, results, 
and mutual accountability.  Working with the Organization for Economic Co-operation and 
Development/Development Assistance Committee and other donors, the Bank agreed on 
targets for these indicators.  As part of the targets to be met by 2010, donors agreed to double 
the joint donor analytic work, to reach two-thirds of country analytic work.    
 
AAA 
 
S
TATUS  BY  
R
EGION
,
C
OUNTRY  AND  
S
ECTOR
 
4.9 
Region and Country.
 
AAA spending as a percentage of Regional country services 
budgets remained stable in FY05 at about 28 percent.  Since AAA spending within a Region 
is essentially the aggregation of country CAS commitments programmed within a CAS cycle, 
the pattern of differences in Regional share of country services devoted to AAA changes at 
the margin from year to year.  For the last three fiscal years, ECA and LCR remain at the 
lower end of AAA spending; AFR, EAP, MNA and SAR typically record shares of spending 
on AAA that are above the Bank average.   
 
4.10 
As with Bank lending, country AAA spending is concentrated on a few countries, 
although the degree of concentration is less than for lending.  Ten countries, representing 
together about 23 percent of AAA spending, had individual AAA programs in FY04-05 in 
excess of $3.5 million.   
 
17
 
Global AAA activities encompass more than one Region; Regional AAA is a task directed to a single 
Region or sub-Region. 
Page  42
Annual Report on Portfolio Performance FY05 
 
   32 
4.11 
Country Category.
 
Viewed by the Country Category Grouping, as used in Table 4.2, 
AAA in ‘IBRD Investment Grade’ countries is a smaller share of total output and spending 
on tasks delivered in FY05 by comparison with FY04.  AAA in ‘IBRD Only’ countries 
increased only marginally in terms of number of tasks completed but grew significantly in 
expenditure on completed tasks.  Although IBRD countries, taken together, tend to have a 
relatively high share of country services budget devoted to AAA, the review of Bank 
assistance in MICs has indicated that some clients still view the Bank as not responding 
adequately to their differentiated needs for top-quality AAA.
1
8
The recent MIC Action Plan 
reports on plans to strengthen the provision of AAA to MICs, including actions to achieve 
better alignment of Regional, Network, Development Economics (DEC) and WBI work in 
knowledge services to MICs.
1
9
T
ABLE 
4.2:
 
AAA 
 
D
ELIVERIES  AND  
C
OSTS  BY  
C
OUNTRY  
C
ATEGORY  
G
ROUPING 
 
(FY04 
 AND  
FY05) 
 
FY04
FY05
BB
TF
Total
BB
TF
Total
IBRD Investment Grade
140
129
16
3
19
14
1
16
China
33
32
3
1
4
32
5
IBRD Only (Others)
196
206
21
4
24
29
4
33
India
35
39
6
2
8
53
8
Blend
69
64
8
4
12
63
9
IDA Only
239
255
22
7
29
24
6
30
Licus
92
81
11
4
14
13
5
18
Global AAA
73
85
7
3
10
11
2
13
Regional AAA
160
154
16
14
30
20
22
43
Total
1,037
1,045
110
42
151
125
49
174
Country Group
Deliveries (#)
Initiation to Delivery Costs (US$ Million)
FY04
FY05
Note: Other refers to a residual grouping of non-borrowing countries, sub-regional associations, etc.  
 
4.12 
‘IDA Only’ countries show an increase in AAA deliveries and spending in FY05.  
For LICUS countries, delivery of completed AAA tasks declined slightly in FY05, while 
spending on completed tasks, including core ESW, grew.  Year-on-year totals, of course, are 
influenced by the vagaries of the delivery cycle and should not be over-interpreted.  But the 
overall figures, particularly as seen from a two year perspective, indicate a growing 
commitment to AAA in countries where poverty is most acute and where human welfare is 
also affected by conflict or instability.  
 
4.13 
Sectors and Themes.
 
The growing share of ESW output in FY05 in ‘other diagnostic 
reports’ and ‘advisory reports’ is largely sector work that seeks to lay the foundation for 
sector dialogue and for Bank lending in line with CAS understandings.  Both INF and ESSD 
Networks are implementing action plans to reverse the decline in lending reported in 
previous ARPPs.  And the FY05 results show that INF and ESSD lending has increased (by 
$2.1 billion and $1.8 billion respectively).  Has the analytic foundation for this expansion in 
Bank financial assistance been supported by a corresponding increment in ESW?    
18
 
Report of ‘
The Working Group on Enhancing World Bank Support to Middle Income Countries’, 
May, 2004. 
19
 
See 
MIC Management Action Plan: Implementation as of August 2005.  
Page  43
Annual Report on Portfolio Performance FY05 
 
   33 
4.14 
The answer appears to be positive.  The level of effort, as captured by the completion 
costs per task, has increased
—by
about 11 percent in both the INF sectors and the ESSD 
sectors.  This reflects intensification of analytic work in the corresponding sectors, notably 
transport, urban development, water and sanitation, and to a lesser extent energy and mining 
within INF; and environment, the rural sector and social development within ESSD.  (Of 
course, analytic work financed directly as part of project preparation would not be captured 
in these ESW figures.)  In contrast, the number of ESW deliveries and delivery costs in both 
FSE and HDN are down measured between FY04 and FY05.   
 
4.15 
As with AAA output by Region, output by Network shows some volatility on a year-
to-year basis.  For example, HDN ESW outputs increased sharply in FY04 while showing a 
moderate increase in FY05.  And the lag between ESW effort and new lending will vary 
country by country for multiple reasons.  But, overall, agreed unit compacts for both Regions 
and Networks in the FY06
–
08
planning horizon appear in the aggregate to align ESW effort 
with projection of lending outputs.  An important responsibility of sector managers within 
each Network is to evaluate the consistency of the proposed country lending program with 
planning for AAA during CAS preparation and to monitor the unfolding of those plans 
during CAS implementation.
 
4.16 
Beyond shoring-up the analytic base for lending, two other characteristics stand out 
in production of AAA by sector and thematic grouping over the period FY03
–
05.
20
 
There 
has been a sharpening of the focus sector/thematic work targeted to growth (for example, 
finance, public sector governance, private sector governance), infrastructure and urban and 
rural development.  The Bank is also trending toward producing more analytic work that 
covers more than one sector or thematic area.  Sector work is being integrated more into 
diagnostic studies of broader coverage, such as reviews of public expenditure composition 
and efficiency.   
 
4.17 
Bank-wide tracking of AAA implementation indicates that the length of time to 
deliver tasks as well as the backlog of tasks initiated but not yet delivered to the client are 
both increasing.
 
Despite Bank management’s commitment to accelerate delivery of AAA in 
response to clients’ requests, average elapsed time from task inception to delivery to client 
has continued upward in FY05.  Viewed over a three year period, delivery of AAA tasks 
reports required an average of 16 months in FY05 versus 14 months in FY03.  The sharpest 
increase in average delivery times is in AFR, ECA, LCR and MNA, with AFR recording the 
highest average delivery time of 19 months.  Within AAA, even Policy Notes, which are 
explicitly justified on the basis of quick turnaround, required 14 months for completion in 
FY05.  Clients consistently express a desire for greater responsiveness and timeliness in 
AAA.  But performance in FY05 indicates further backsliding.
21
 
Indeed, even when 
measured against the task team’s own initial estimate of expected delivery time, slippage has 
increased to an average across all tasks of 7.5 months.  
 
20
 
The share of ESW covering more than one sector, a proxy for multi-sector work, has risen to over 25 
percent, para.14, 
Draft Sector Strategy Implementation Update
,
October 19, 2005. 
21
 
Management has commented that policy notes are often made available as produced, including first 
drafts, and the recorded delivery time does not fully capture this aspect.   
Page  44
Annual Report on Portfolio Performance FY05 
 
   34 
4.18 
How to explain this apparent slow-down in AAA implementation?  On the one hand, 
some of those leading the AAA work in the Regions view the Bank-wide task reporting 
system as virtually unusable and pay little attention to it.  They argue that the creation of a 
separate code for each task combined with the lack of user-friendliness in inputting 
information and updating the system leads to inaccuracy in reporting.  For that reason, 
several Regions have, in effect, substituted their own AAA monitoring arrangements.  On the 
other hand, reported increase in delivery times over a three year period may well reflect a 
lack of management attention.  Certainly, lack of effective oversight of AAA, particularly 
during AAA task implementation, has also surfaced in country AAA assessments (para 4.23 
(c).)  In order to determine the cause of these reported delays and remedy the situation, either 
by fixing the task reporting system or by identifying management actions to reverse the 
mounting delays, OPCS and the Regions should revisit this question.  
 
AAA 
 
Q
UALITY  AND  
E
FFECTIVENESS
 
4.19 
With AAA having assumed a more prominent place within Bank country 
programming, the question naturally arises: how effective is this spending in achieving 
development objectives?  Since 1998, QAG has been undertaking independent quality 
assessments of individual ESW tasks.  Quality has been steadily improving.  Noting that 
these assessments did not capture the full range of AAA products or possible synergies 
among AAA tasks, an advisory panel recommended in 2003 that QAG widen its scope and 
assess the entire AAA portfolio of countries.  Accordingly, management agreed to widen the 
scope of the assessment program to include Other ESW tasks and TA tasks and to undertake 
country AAA assessments.   
 
4.20 
Quality Assessment of Other ESW.
 
A
recently completed assessment of ‘Other 
ESW’ evaluated about 95 percent of the sampled tasks as
 Satisfactory or betters
—although, 
on a six-point scale, about a fifth of the tasks were rated only 
Moderately Satisfactory
,
the 
lowest category within the 
Satisfactory 
range.
22
 
A
particular area for greater attention 
concerns the common judgment by panelists of missed opportunities to maximize impact due 
to insufficient attention to dissemination arrangements.   
 
4.21 
The assessment also uncovered a high error rate in task recording in the Bank’s 
information systems.  Such errors undermine the usefulness of the reporting system as a 
management tool.  OPCS has since moved to correct this situation by issuing new guidelines 
that took effect at the beginning of FY05.  And an ESW portal has been created to provide 
clearer guidance to task managers.  
 
4.22 
Quality of TA.
 
A
quality assessment of TA was also recently completed.
23
 The 
findings are even more positive overall than those for Other ESW.  More than 95 percent of 
22
 
This review was based on a sample of 110 randomly selected tasks completed in FY03-04, 
representing 20 percent of all tasks by number and 30 percent by cost.  Reference: 
Assessment of the 
Quality of Other Economic and Sector Work
,
QAG, March 15, 2005. 
23
 
The sample of tasks for this assessment included 75 randomly selected tasks representing about 25 
percent by number and 46 percent by cost of all TA tasks completed in FY04.  Reference: 
Assessment 
of the Quality of Non-Lending Technical Assistance,
 QAG, July 13, 2005. 
Page  45
Annual Report on Portfolio Performance FY05 
 
   35 
tasks were identified as 
Moderately Satisfactory or better
;
indeed, more than a quarter were 
judged 
Highly Satisfactory 
and the share rated 
Moderately Satisfactory 
was small.
 
A
strength 
of th
ese technical assistance activities was their strategic relevance in support of the client’s 
development agenda and the quality of dialogue and dissemination associated with them.  
Again, improper coding plagued these tasks.  And OPCS has since undertaken to remedy this 
situation with the issuance of clearer guidance and stricter guidelines combined with better 
support to information system users. 
 
4.23 
Country AAA Assessments.
 
At present 36 country AAA program reviews have been 
completed.  Panels performed the assessments by examining performance over a full CAS 
cycle, focusing, among other aspects, on the strategic relevance and coherence of the AAA 
program in relation to CAS priorities and governments’ own development agenda.
2
4
They 
also examined synergies among individual tasks and clusters of tasks.  In addition to 
reviewing documents and meeting with country teams, panels conducted interviews in the 
field with clients and other stakeholders.  A number of common concerns emerge from the 36 
cases.  The findings are summarized below along with pointers on possible improvements.
25
 
(a)   
Strengthening Strategic Relevance, Coherence and Country Focus of AAA
 
·
AAA quality remains quite good, particularly at the task level, but 
management should tighten the strategic focus of country AAA.
 
Overall 
country AAA quality is generally high—29 cases, or 86 percent in dollar-
weighted terms, were rated 
Satisfactory
 
or
better
.
Importantly, recent 
progress in the quality of individual tasks is sustained.  At the same time, 
some of these 
Satisfactory
 tasks were being performed in 
Less than 
Satisfactory
 country AAA programs.  What most distinguishes strong from 
weak country AAA programs is not the performance of individual tasks but a 
strategic approach to the country’s AAA program combined with effective 
implementation.  In effect, the quality and effectiveness of country AAA 
programs are often less than the sum of their parts;   
 
·
Lower-rated AAA programs display a lack of strategic rationale for the 
AAA portfolio in relation to CAS objectives, including the lending program, 
and the government’s own development agenda
.
The stronger AAA 
programs typically start off with a careful strategic assessment embedded in 
the CAS.  In these cases, together with counterparts and other stakeholders, 
country teams have focused explicitly on CAS objectives and the AAA that 
would support their achievement;  
 
24
 
The 36 countries cover all six Regions and a wide spectrum of clients. They represent 41 percent of 
total Bank spending on country AAA during FY02-04.  The panels assessed 289 tasks out of a total of 
774 completed during the review period, costing about $50.6 million and representing about 47 percent 
of the AAA budget in those countries.  Reference: 
Country AAA: Synthesis Report,
 QAG, September 
6, 2005.    
25
 
Although QAG has moved to a 6 point scale
—in an attempt to capture information that would better 
serve to discriminate among tasks—the country AAA assessments program has continued to use the 4 
point scale to preserve compatibility among the 36 assessments.  
Page  46
Annual Report on Portfolio Performance FY05 
 
   36 
·
While core diagnostic ESW adds coherence to a country program, it needs 
to be balanced against client demand for analytic support as well as 
resources available.
 
Large programs can sustain a full suite of integrative 
and diagnostic studies.  Small ones might include only two over a five year 
cycle (for example, a combined CEM/PA and an integrated 
PER/CFAA/CPAR).  Programs in extremely small countries might not be 
able to even afford this and rely instead on a well-structured series of policy 
notes;   
 
·
Technical Assistance can play a constructive role in a balanced AAA 
program.
 
TA seems to be relatively effective in achieving objectives.  This 
no doubt results from a clearer focus and articulation of results of technical 
assistance, often in support of a sector lending agenda.  A balanced program 
can therefore include one or more larger integrative ESW tasks (such as a 
PER) with associated and focused TA tasks, along with sector AAA; and 
 
·
Lack of strategic fit within the overall AAA program is most acute for 
centrally-funded and executed AAA.
 
All too often such tasks are imperfectly 
integrated with the country strategy.  To address this concern, country 
management must ensure that these tasks follow standard quality assurance 
processes and include strong peer review by the country team.
 
(b)
 
Achieving Quality in Diverse Country Contexts 
 
·
Country context matters, but does not pre-determine the quality of AAA.
 
It 
has often been said that high quality AAA is more likely to be obtained in the 
easy places, not the hard ones.  But the picture of successful AAA suggests 
that is not the case.  Strong AAA programs are found in countries with high 
and low CPIA scores, in both IBRD and IDA countries, and in countries with 
‘unfavorable circumstances’ as reported by country teams.
26
 
Clearly, not all 
factors are within the control of the Bank.  But the country AAA assessments 
suggest that an agile management team is able to factor context into its design 
for AAA and execute a program that meets high standards of quality. 
 
(c)  
Improving Management Oversight of AAA 
 
·
Responsibility for the AAA program should be clear.
 
The quality of 
management oversight of AAA is highly variable.  Management attention, 
including that of both country and sector management, was typically highest 
during task inception and declined during implementation.  In theory, the 
country director is responsible for overall country program oversight; in 
practice other priorities and pressures may render the AAA program a 
secondary or even lower priority.  Depending on the size and complexity of 
the AAA program, it may be useful to formally designate a staff-member to 
have primary responsibility for the AAA program as a whole: this could be 
26
 
Country teams were asked to rate the political context, the institutional context, the country knowledge 
base, and the status of Bank and donor relations with the country. 
Page  47
Annual Report on Portfolio Performance FY05 
 
   37 
the country director, the country manager, lead economist or someone else 
formally delegated by the country director;   
 
·
Responsibility for country AAA must also clearly transcend sectors
.
One of 
the
 weaknesses of the Bank’s organization is the tendency to work in sectoral 
“silos.”  The country AAA assessments suggest that this has not yet been 
overcome.  Especially for large country teams, a smaller “core” country team 
may be useful to finalize the strategic alignment of the AAA program and 
reduce the transaction costs of sustaining strong sector linkages during AAA 
program implementation;    
 
·
AAA implementation oversight should be strengthened.
 
Even relative to 
lending, monitoring and evaluation of AAA is weak.  In addition to more 
consistent use of AAA monitoring and reporting tools already available 
Bank-wide or in the Regions, the country management team could consider 
conducting regular, possibly annual, joint reviews with the authorities of 
AAA program implementation and findings.  One option would be to broaden 
the CPPR into an annual Country Service Review that includes the AAA 
program.  This would build into the AAA retrospective at the end of a CAS 
cycle; and
 
·
Effective management will stay alert to the need to adjust AAA in relation 
to changing country conditions.
 
The Bank is often slow to revise country 
AAA in response to political, economic or other changes within the country.  
As restructuring of the financial portfolio is on occasion needed in response 
to unexpected events, so is restructuring of the AAA program.  An important 
management tool to facilitate AAA program adjustment is clear triggers for 
change.
 
(d) 
Building Coalitions for Change through Effective AAA Dissemination 
 
·
Dissemination needs to be planned and funded as an integral part of AAA 
program design and management. 
 AAA is designed to contribute to country 
program objectives and affect results on the ground.  Yet all too often the 
Bank is missing opportunities to integrate and disseminate AAA of keen 
interest to clients.  This reduces the potential of the Bank to contribute to 
development as an agent of change, particularly in the more open political 
environments that now characterize many clients.  A dissemination strategy 
should be planned and agreed as part of the concept review of major AAA 
tasks.  And, unless specifically agreed otherwise, the presumption should be 
that AAA is intended to be widely accessible; and 
 
·
Translation is key and links with EXT and WBI should be strengthened and 
formalized
.
Major reports should be available in local languages, where this 
is useful to increase access and contribute to policy debate.  Even if full 
translation of all reports is too costly, less prominent reports can be structured 
to open with readable and concise summaries that can be translated and 
Page  48
Annual Report on Portfolio Performance FY05 
 
   38 
disseminated within the country concerned.  To help ensure a sound 
dissemination strategy, including through media where appropriate and with 
multiple audiences, a representative of EXT and WBI should attend concept-
stage reviews for major ESW and TA tasks.  Country offices could plan 
regular press conferences on AAA products, perhaps scheduling a monthly 
meeting with leading economic journalists.  WBI should also be engaged, to 
support programs of substantive discussion and debate centered around major 
analytic products. 
 
(e)  
Ensuring Adequate Funding and Aligning Staff Incentives and Skills 
 
·
Adequate funding does not guarantee a strong AAA program but under-
funded programs are less likely to be effective.
 
Under-funding can be due to 
a
tight country envelope.  But it often seems to coincide with poor use of 
resources, suggesting that the problem may result from inadequate 
management attention.  Pooling resources with other donors can be one 
approach.  Notably, the country AAA assessments provide no evidence that 
using trust funds undermines quality nor that jointly produced AAA is of any 
less quality or relevance.  To the contrary, the capabilities of partners and 
local expertise add value; 
 
·
Sector staff needs recognition for their AAA work.
 
PREM-managed AAA is 
more likely to be 
Satisfactory 
than sector work and it is usually better-
integrated into the country program.  This is largely due to the stronger 
incentive for lending as contrasted with AAA often found in the sector units.  
Similarly, incentives for the country management team need to be more 
neutral as between financial transfer and knowledge engagement so that Bank 
services to the country strike the balance needed to be an effective catalyst of 
development.  This balance should, of course, be clearly set out in the CAS; 
and 
 
·
AAA in MICs presents special challenges of funding and specialized 
expertise.
 
The funding of AAA in MICs, especially those without a lending 
relationship, presents a special challenge for the Bank.  Possibly more 
serious, however, is the need for the Bank to access the high-level and 
sometimes specialized skills needed to make a useful contribution in more 
advanced countries.  Just as engagement in the MICs is essential for being 
able to offer a full range of analytic skills to lower-income clients, the ability 
to tap into the skills base of OECD countries will increasingly be needed to 
sustain the Bank’s analytical engagement in the MICs.  
 
C
ONCLUSIONS 
 
4.24 
The ARPP overview of Bank AAA provides a basis for judgment about the current 
status and future direction of analytic and advisory services to clients as well as their quality 
and effectiveness.  The evidence first noted in FY04 of a shift from core diagnostic AAA 
towards more country-tailored products has continued along with improved coordination 
among development partners in the performance of country AAA. 
Page  49
Annual Report on Portfolio Performance FY05 
 
   39 
4.25 
These positive trends favor greater alignment of AAA with CAS objectives and 
outcomes, including a firmer analytic foundation for Bank lending.  The movement toward 
improved partnerships opens up the promise of more efficiency in the use of aid resources for 
analytic and knowledge services.   
 
4.26 
Even though successive quality assessments of individual ESW tasks and a recent 
assessment of TA tasks have shown progress on a broad front, findings from assessments of 
the overall country AAA program point to areas for improvement.  The core of the critique 
relates to how well Bank management oversees country AAA and how effectively AAA is 
used to help create a climate for reform.  Additionally, Bank-wide monitoring of AAA 
performance in FY05 has identified mounting delays in delivery of AAA products.  Finally, 
in view of the growing share of AAA resources devoted to global and regional AAA, 
activities not yet subject to independent quality assessment, QAG has initiated an assessment 
of this type of AAA. 
 
Page  50
Annual Report on Portfolio Performance FY05 
 
   40 
V.    PROGRESS IN IMPLEMENTING THE RESULTS AGENDA 
 
5.1 
The FY04 ARPP summarized and assessed progress to date on the Results Agenda, 
including the status of the Results Action Plan as of end December 2004.  It noted important 
advances in areas such as the experience and learning acquired with the Results Based CAS 
(RBCAS) and early progress in design of the results reporting system.  It also identified 
several areas requiring attention.  Notable among these were the following needs: to provide 
staff guidance on better linking sector and country program priorities; to set clearer priorities 
among th
e
many ‘results’ initiatives;  and, more generally, to better align incentives and 
structures with these priorities.  Finally it formulated several recommendations for 
management.  This chapter updates the assessment of progress, including the status of the 
FY05 Action Plan and ARPP recommendations.  It also draws conclusions and formulates 
recommendations for the next year.
27
 
5.2 
The World Bank defined a conceptual framework for the Results Agenda in 2002.  
Implementation of the Bank-wide agenda on better managing for results began in early 2003 
with an action plan
2
8
that called for actions across three pillars (Figure 5.1): (a) 
in countries
,
where development results are achieved, to strengthen both capacity and demand to manage for 
results; (b)
 in the Bank
,
to enhance the relevance and effectiveness of our contribution to 
results; and (c) 
across development agencies, 
to harmonize results-based approaches and better 
coordinate support to strengthen country capacity to manage for results. 
 
F
IGURE 
5.1:
 
T
HE  
R
ESULTS  
A
GENDA
’
S
T
HREE 
P
ILLARS
 
27
 
Progress on the Results Agenda and next steps is treated in detail in the upcoming second progress 
report, “
Accelerating the Results Agenda: Progress and Next Steps
”, scheduled for CODE review on 
March 8, 2006. 
28 
 
Better Measuring, Monitoring and Managing for Development Results:  Implementation Action Plan
 
(SecM2003-0038), January 31, 2003.  
Page  51
Annual Report on Portfolio Performance FY05 
 
   41 
P
ROGRESS  IN  THE  
C
OUNTRY  
C
APACITY  
P
ILLAR  
 
5.3 
Development results are achieved at the local level, so that is the level at which the 
Bank and other development partners must focus their efforts.  To help country partners 
develop the political will and institutional capacity they need to manage for results, the Bank 
has supported them in strengthening their national strategic planning (including for poverty 
reduction strategies) and in building results-based public sector management, statistical 
capacity, and monitoring and evaluation systems.  A well-articulated development strategy 
with clearly defined outcomes and indicators is a common element present in countries 
across the development spectrum that have made progress in results monitoring.  An added 
benefit of such a strategy is that it enables the development community to link together 
within a coherent assistance framework that may include, among other activities, support for 
results capacity building. 
 
5.4 
Poverty Reduction Strategies (PRSs)
.
The introduction of PRSs, or equivalent 
development frameworks over the last several years has greatly served the interest of 
building capacity for results at the country level.  Well prepared PRSs have not only helped 
rationalize government’s own development agenda and supporting investment program.  
They have also provided a framework for harmonization and alignment of donor assistance 
activities and raised the priority for monitoring strategy and development program 
implementation.  
 
5.5 
While progress has been achieved in making PRSs more results-oriented, continued 
efforts are needed.  A recent Review of the PRS Approach found that only 16% of PRS 
countries have specific targets that are aligned with development goals, while another 65% 
are in the process of seeking that alignment.
29
 
One factor in the failure to achieve 
consistency between goals and targets is the difficulty governments face in setting clear 
priorities.  Particularly in cases of very comprehensive strategies, priority setting is a key.  
Experience with PRS implementation suggests that close links between PRS cycles and 
budget processes help lead to better progress in prioritization.
30
 
5.6 
Strengthening Country Information for Results: Statistical Capacity
.
Inadequate 
information systems and lack of use of information already available have been recurrent 
constraints in development programs.  In the absence of effective demand from national 
leaders and society at large, efforts to develop a results capacity and to apply that capacity for 
decision-making are unlikely to be successful or sustainable.  To overcome these constraints 
to result monitoring on both the demand and supply side, the Bank and its partners will have 
to intensify efforts, most likely in the context of PRS preparation and dialogue, as well as in 
assistance to help underwrite the PRS. Equally importantly, country implementation capacity 
to define and track outputs and outcomes at the sector levels needs to be strengthened.  To 
help target efforts better and compare sector performance across countries, sector M&E 
systems across countries need to be studied in greater depth. 
 
29
 
2005 Review of the Poverty Reduction Strategy Approach:  Balancing Accountabilities and Scaling Up 
Results
.
The World Bank and International Monetary Fund.  Report to Development Committee 
DC2005-0017.  September 12, 2005, p.13. 
30
 
Ibid,  p.16. 
Page  52
Annual Report on Portfolio Performance FY05 
 
   42 
5.7 
The Bank has supported a number of activities to strengthen information for results 
such as the Bank administered multi-donor Trust Fund for Statistical Capacity Building 
which was established in 2000 and provides financing for statistical capacity building 
activities across the world.  It is a part of the worldwide effort to improve the supply of and 
demand for statistical data relevant to poverty reduction and development, and works closely 
with the Partnership in Statistics for Development in the 21st Century.  
 
5.8 
The Bank developed a system for measuring statistical capacity at the country level in 
the context of the preparation of the IDA 14 results measurement system.  To signal the 
importance of using Bank instruments and policies to focus on country capacity to manage 
for results, this measure is now included as a key performance indicator in the Regional 
Strategic Performance Contracts, signaling to staff the importance of working with clients to 
build country-level capacity. 
 
P
ROGRESS  IN  THE  
B
ANK  
P
ILLAR
 
5.9 
The Bank Pillar has in all likelihood received the greatest attention to date within the 
broader results agenda.  Key elements include: a new approach to country assistance 
programming, anchored in the Results Based CAS; and improved systems for CAS 
implementation monitoring and results reporting.  
 
5.10 
Results-Based CAS.
 
Based on lessons learned during the initial pilot phase, the 
RBCAS was mainstreamed in the second half of FY05.  New guidance was provided to staff 
through an updated BP 2.11, 
Country Assistance Strategies
.
To date, 21 RBCASs have been 
presented to the Board.  The chief innovation of a RBCAS is the incorporation of a results 
framework that seeks explicitly to link Bank development activities (AAA, other knowledge 
services and financing) with long-term development outcomes at the country level.  
 
5.11 
Assessment of the RBCAS Pilot.  
Evaluations
31
 by Bank management and by IEG 
have assessed favorably the overall experience with the RBCAS pilot, particularly in terms of 
better CAS alignment with country priorities.  An important achievement of the stronger 
RBCASs included a better articulation of the contribution each CAS activity (AAA and Bank 
operations) should make to country goals.  Also greater alignment of program activities with 
development outcomes, as spelled out in the Results Matrix included in each CAS, should 
tend to strengthen the strategic focus of the CAS.  
 
5.12 
Less positively, assessment of the RBCAS pilot brought to light a few areas of 
shortfall that have now been made the subject of additional guidance in the new BP 2.11.  
These include the common lack of baseline measures and the absence of interim benchmarks 
of performance.  An equally fundamental shortcoming in a number of cases was the absence 
of a clear results chain (or logical sequence of cause and effect) between CAS activities and 
expected development outcomes
—for example, operations within the Bank’s portfolio failed 
to show clear linkages with expected country-level CAS outcomes.  Needless to say, in these 
cases, the alignment was even more dubious in relation to contribution to achievement of the 
country’s own development strategy and goals.  
31
 
See 
Results Focus in Country Assistance Strategies: A stocktaking of Results-Based CASs 
(R2005-
0042) February 24, 2005 and 2004 Annual Report on Operations Evaluation. 
Page  53
Annual Report on Portfolio Performance FY05 
 
   43 
5.13 
Linking Projects to Programs
.
While, in principle, projects under an RBCAS should 
be designed with country-level outcomes in mind, alignment will take time as the 
methodology is being implemented with an ongoing portfolio that was not designed with as 
much focus on alignment with specific CAS outcomes.  In addition, the Bank is in the initial 
stages of extending its focus on improved monitoring and evaluation within the boundaries of 
a
particular project or activity, to the use of project and AAA instruments to build and 
reinforce the capacity of line agencies, or, where relevant, cross sectoral coordination bodies, 
to define and measure results.  Often, countries have multiple projects in a single sector
—3 
infrastructure projects for example—each with its own separate arrangements for monitoring 
and evaluation, none of which has linkages to each other, to the CAS results framework or 
most importantly the national level expectations and methods for measuring results in the 
sector.  Progress in aligning country frameworks with sector tasks will require that outreach 
on the results agenda and its operational implications for sector management and staff be 
strengthened.  In particular, the roles of sector staff and sector management in strengthening 
the capacity of their counterparts in line agencies to use monitoring and evaluation tools to 
better manage their programs need to be reinforced. 
 
5.14 
Project Level Monitoring Arrangements
.
While the roll-out of the RBCAS 
continues to focus on improving the quality of the CAS Results Frameworks, significant 
attention is required to improve the quality of project results frameworks.  An initial review 
of the quality of results frameworks in ISRs prepared in FY05 found that only 60% had an 
acceptable results framework.  Reporting in ISRs indicate that approximately 7% of projects 
have an M&E risk flag, reflecting a general upward trend from about 5% in FY01.  This 
figure may be unrealistically low given other information on the weaknesses of project-level 
M&E.  With the strengthened focus on M&E and results in recent years, it seems likely that 
this upward trend reflects an increased awareness of the importance of M&E and results 
management.  However, there is no data to confirm or refute this or to assess whether the 
variance in this figure by region is due to variations in realism in the ratings, variations in 
M&E performance, or some combination thereof.  Africa has had the greatest growth in the 
use of the M&E risk flag, doubling ”unsatisfactory” ratings from 7% in FY01 to nearly 14% 
today; while in East Asia, the use of the risk flag has decreased from over 6% in FY01 to 
about 2.5% today.  All other regions follow a milder upward trend.
 
5.15 
Results-Based Country Program Reviews.
 
The Results Secretariat in OPCS 
undertook a review of CPPRs completed over the past two years to establish the extent to 
which they address managing for results, with emphasis on (i) the alignment of Bank-
financed programs with CAS and country priorities as laid out in national development 
strategies, such as PRSs; (ii) the links between project and program levels; and (iii) the 
results frameworks and monitoring at country, program and project levels.  Those reviews 
which demonstrate evolution in this direction will be referred to as Results-Based Country 
Program Reviews.
 
5.16 
CPPR practices, modalities, and scope vary widely across the Bank and good 
practices are not necessarily concentrated in a single region, country or sector.  In very broad 
terms CPPRs can be classified into three groups, with the subsequent discussion focusing on 
the latter two groups (collectively referred to as CPRs here):  
 
Page  54
Annual Report on Portfolio Performance FY05 
 
   44 
(1)  
Traditional CPPRs
:
those that focus predominantly on the speed of project 
implementation and address specific and generic issues that cause delays.  
Typically, such reviews look at fiduciary issues, funds flow, and 
implementation organization issues, and accentuate the resolution of problem 
projects;   
 
(2)  
CPRs that, in addition to project implementation, have elements of a results 
oriented CPR (RB CPR), that is, they address certain strategic and 
management issues, and often contain recommendations for future operations.  
Such issues most often relate to the quality of project implementation, e.g., 
clarity of Key Performance Indicators (KPIs), quality of M&E, skills support, 
quality of reporting, the effect of internal simplification and modernization 
changes, the cost of doing business, to name a few; and 
 
(3)  
RB CPRs
:
those whose starting point is the achievement of CAS outcomes 
and the quality of program delivery.  They contain an in-depth analysis of the 
contribution of various elements of the program toward CAS outcomes, and 
could include options for portfolio restructuring for better alignment, 
assessment of impacts on beneficiaries and institutions, the appropriateness 
and use of Bank instruments and services.  Such reviews would take into 
account all program elements (investment projects, DPLs, AAA, TFs, policy 
dialogue, outreach activities) and measure their combined contribution to 
CAS outcomes.  There is a fine line between the second and third groups, 
depending on the depth and comprehensiveness of the analysis and, above all, 
the ability to link program performance with progress toward CAS outcomes.  
 
5.17 
In the absence of alternative instruments, and of updated Bank-wide guidelines on 
CPPRs or CPRs, country teams have been proactive in operationalizing messages from senior 
management about the results agenda and have, together with regional and Bank-wide 
resources, worked through individual processes to conceptualize an RB CPR.  While the 
effort is demanding on staff time and budgets, it has not been futile.  A positive consequence 
from such exercises is that there has been sufficient freedom and flexibility to experiment 
with CPR subject matter and modalities, to test various approaches, and generally adjust 
CPRs to business needs.  As a result, some interesting ideas have emerged, for example, the 
Cameroon efforts to come up
 with a “development effectiveness scorecard” or the 
development of common results frameworks and assessment tools, such as in Vietnam and 
the Philippines.  On the down side, country teams appear to run into difficulties at a point 
where they need to establish the linkages between program elements and CAS outcomes and 
the mainstreaming of M&E systems in government.  Feedback from staff is that M&E 
expertise for the project level analysis is readily available but there is less expertise across the 
Bank in establishing the links between projects and program level results assessments.     
 
5.18  
New content in CPPRs started being introduced around and after 2001, when first 
attempts were made to (i) examine project DOs and M&E, distinguishing between outputs 
and outcomes at the project level; (ii) link project outcomes; (iii) attempt to assess the 
effectiveness of and the linkages within the entire Bank program, to include DPL, AAA, 
pipeline, use of TFs, and other WB-led activities; (iv) include key development agencies as 
participants, thus looking at overall development assistance to a country.  
Page  55
Annual Report on Portfolio Performance FY05 
 
   45 
5.19 
Content has since been refined and expanded.  With the roll-out of RB CASs, clearer 
links between activity (e.g., project, AAA) outcomes and CAS targets have been established 
(Macedonia).  Country capacity for M&E for development is being addressed, at least 
initially at the CAS level (Vietnam, Ghana).  Portfolios are being simultaneously 
realigned/restructured with new CASs (Nigeria, Madagascar, Brazil).   
 
5.20 
Regional leadership has been a 
key in channeling management’s messages and 
providing support to country teams to help them address results on the ground, particularly at 
the project level.  EAP has issued guidelines for “Country Results Management Reviews”, 
and is piloting the approach in Vietnam and the Philippines.  In 2004 ECA conducted a 
review of CPRs, classifying them according to a set of criteria grouped under “nuts and 
bolts”, strategic issues and management issues.  The exercise showed that only a few out of 
27 reviews studied in ECA address portfolio alignment with the CAS/PRSP.  MNA & LAC 
have held a regional M&E workshop and conference, respectively.  AFR has launched a 
program of clinics, including M&E supported by a dedicated M&E team, with custom-
tailored clinics conducted as part of the CPRs/CPPRs.  As a result of strengthening M&E at 
the project level, all regions provide support to task teams, and MNA has made it a practice 
not to approve Board packages with inadequate M&E arrangements, including baseline 
indicators.  In addition, MNA conducted reviews of ISRs and identified elements of good 
practice which were used in subsequent M&E workshops as part of the region’s move toward 
evidence-based supervision reporting.  Further, IDF grants are being used to assist client 
countries to improve their systems for results monitoring of overall development assistance 
and training of counterparts.  In mid 2005, SAR also conducted a thorough review of ISRs to 
assess the quality of supervision reporting, on the assumption that, while not entirely 
accurate, ISRs can be a proxy for gauging results on the ground.  The findings were that 
about 70 percent of ISRs pass the quality test, but completeness of the DO matrix and 
consistency with the DO rating explanation is a problem. 
 
5.21 
New directions of CPPR content, that is, CPRs falling in groups 2 and 3 described 
above, can be seen in about a third of the countries in which the Bank has an active lending 
program.  Of the 50 CPPRs studied, 37 (i.e., 75 percent) have content beyond the traditional 
CPPRs, though only eight (16 percent) are clearly group 3 CPRs, and another 10 are perhaps 
borderline cases.  However, the number of group 3 CPRs is likely to remain unchanged even 
if the full set of countries with active portfolio practices were studied, since the reports were 
initially collected on a recommendations basis, meaning that the best examples are already 
available and any further information on additional countries will likely not yield any 
additional CPRs of the group 3 type. 
 
5.22 
Emerging Lessons from Experiences with CPRs
.
The review reached the following 
conclusions.  (i) Comprehensive results based CPRs can only be done with an RBCAS or 
government development program that contains clear specification of objectives, and ideally 
targets, as only then can links be sought between projects and the overall country program.  
Without a structure that provides a framework, indicators and targets for development it is 
not possible to measure progress or plan ahead.  The best a CPR can do in such cases is to 
look at outcomes and M&E at the project level but it will not have specified higher level 
outcomes or intermediate milestones against which to align the outcomes of individual 
activities.  (ii) Staff interviewed converge around the view that CPRs should maintain their 
flexibility and normally be conducted every two years.  (iii) In addition, the exercise has 
Page  56
Annual Report on Portfolio Performance FY05 
 
   46 
shown that the lack of any standardized reporting format or CPPR depository makes it 
difficult to compare country situations at a glance across CPRs.  Finally, (iv) there also seems 
to be insufficient knowledge Bank-
wide about countries’ sectoral M&E systems that would 
allow cross-country comparisons. 
 
5.23 
CAS Progress and Completion Reporting
.
Two related tools to better align 
assistance with outcomes are the mid-point review of CAS implementation through the CAS 
Progress Report and the self-evaluation of the country assistance program in a CAS 
Completion Report (CASCR).  The CASPR is a formal opportunity for stocktaking and, as 
necessary, course correction.  Besides reporting on progress toward achieving CAS outcomes 
and milestones, the CASPR allows for strategy adjustment, including the mix of instruments, 
and fine-tuning of CAS outcomes and indicators.  As the early RBCASs have begun to reach 
their mid-points, the first CASPRs have been reviewed by the Board, and initial lessons are 
taking shape.  The second tool, the CASCR, should become an especially meaningful 
reporting tool in the context of RBCASs that should be able to provide the essential building 
blocks for evaluation: baseline standards, key indicators and a robust reporting system.  The 
chief focus of the CASCR is on the achievement of CAS outcomes and on Bank performance 
in furthering CAS outcomes.  It encompasses both AAA and projects.  It is prepared at the 
end of the CAS cycle in time to deliver useful lessons for the next CAS.  All CASCRs are 
independently validated by IEG.  Each IEG assessment is submitted to the Bank’s Board in 
advance of the Board’s discussion of the next CAS document.   
 
5.24 
Developing a Bank-wide Results Monitoring and Analytic System (RMAS).
32
 
The 
design of the RMAS is driven by the Bank’s need for operational knowledge about what gets 
results in particular country situations—and what does not.  This need also determines the 
RMAS’s focus on country and Bank indicators—selected to highlight areas where the Bank 
is most engaged and how it contributes to country outcomes.  These indicators encompass a 
dozen or so sectors and thematic areas where the Bank provides the vast majority of its 
support for country development.  The main motivation for the exercise is the pursuit of 
improved development effectiveness, complementing the ongoing effort on impact 
evaluations, which provide a more in-depth but more selective assessment of the 
effectiveness of alternative approaches and interventions to achieve development outcomes at 
the country level.  To learn which of its actions work better in particular country situations, 
the Bank needs data on both country and Bank performance.  Thus the title has also been 
changed from Results Reporting System (reported in the FY04 ARPP) to reflect the more 
focused effort to document the content of the results achieved through Bank support, and 
ensuring accountability and learning from these results. 
 
5.25 
Building on these considerations and the work done on the design and 
implementation of the IDA 14 Results Measurement System, the mainstreaming of results-
based CASs, the design of results frameworks in lending, the introduction of results tracking 
templates for ESW and TA and advances in the global program information system, the main 
components of the proposed RMAS are the following: (i) a two-tiered measurement system 
(one tier for the country and one tier for the Bank); (ii) an enhanced capacity building 
32
 
The RMAS Concept Note is scheduled for CODE review on March 8, 2006 and is presented as a 
companion document to the Second Progress Report on the Implementation of the Results Agenda, 
also scheduled for review at that time. 
Page  57
Annual Report on Portfolio Performance FY05 
 
   47 
component to help countries manage for results; and (iii) the inclusion of global programs, 
coverage of which will be expanded over time.  But it goes beyond the IDA-14 system in two 
important ways.  First, it rebalances the list of included country indicators to provide more 
coverage of economic management, trade, and the financial sector, making it more 
representative of the range of Bank support for country development in MICs as well as in 
LICs.  Second, it draws on recent innovations in the CAS process to incorporate CAS 
Completion Reports’ ratings for program performance and Bank performance, and proposes 
an expansion of the program performance ratings to make them more disaggregated.   
 
P
ROGRESS  IN  THE  
G
LOBAL  
P
ILLAR 
 
5.26 
The Monterey Consensus has helped spawn a global partnership for results that is 
changing the way agencies work together.  Both the Multilateral Development Banks (MDB) 
Working Group and the MDB-OECD/DAC Joint Venture on Managing for Development 
Results, established in late 2003, have emerged as platforms for sharing practices and 
learning.  The main achievement to date is agreement on common elements and approaches 
for a results framework within country level assistance programs.  
 
5.27 
Common Performance Assessment and Shared Learning. 
 In contribution to this 
partnership, the Bank is actively engaged in a number of joint tasks, including the 
development and testing of a common performance assessment system among MDBs.  The 
purpose of COMPAS is to provide a common information platform on the MDBs 
contribution to development results.  A related effort is Bank sponsorship with other MDBs 
of a Mutual Learning Initiative for results.  The purpose of this forum is to extract practical 
lessons particularly from the experience of countries that have embraced the results agenda 
early-on.  A parallel undertaking is participation with the other MDBs in fostering regional 
communities of practice to bring lessons about results focus, measurement and monitoring to 
development practitioners at the regional and country levels.  Finally, the Bank is supporting 
preparations for the Third International Roundtable on managing for development results 
scheduled for the Fall of 2006.  This event will provide a key opportunity to assess progress 
to date. 
 
P
ROGRESS  IN  
I
MPLEMENTING  THE  
FY05 
 
A
CTION  
P
LAN
 
5.28 
In addition to working on the results reporting system, Bank management undertook 
to complete six specific actions for FY05 delivery.  Table 5.1 summarizes the status of those 
actions at the end of FY05.  
 
Page  58
Annual Report on Portfolio Performance FY05 
 
   48 
T
ABLE 
5.1:
 
U
PDATES  
A
GAINST  
R
ESULTS 
A
CTION  
P
LAN  FOR  
FY05 
 
Action Status 
Complete 10 country poverty monitoring 
studies. 
12 Country Poverty Monitoring Studies have 
been completed.  The synthesis and studies 
will be published in March 2006. 
Complete strategic statistical plans for 50% 
of PRSP countries. 
Plans have been completed for 13 of the 59 
PRSP countries, and another 16 are underway.  
Once completed, these will essentially meet 
the target. 
Statistical Capacity Building (STATCAP) 
launched in at least 5 countries. 
This will be met in FY06.  Three projects had 
been launched by the end of FY05, three more 
are expected to be launched in FY06. 
20 Results Based CASs completed. 
As of end of FY05, 23 RB CAS were finished.  
Although formulated using the RBCAS 
methodology, six of them did not have a CAS 
CR validated by IEG. 
Achieve a 75% rating for the M&E flag 
portfolio-wide (QAG QSA 5 result was 
65%). 
Done
—QAG QSA 6 result was 75% 
Bank to have participated in at least 4 
African country processes to harmonize 
results around national M&E systems (per 
Marrakech). 
Done 
I
NCENTIVES  AND  
S
UPPORT  
S
YSTEMS  FOR  THE  
R
ESULTS  
A
GENDA
 
5.29 
To be effective in advancing the Results Agenda, new approaches, systems, and 
know-
how must be supported by progress in other ‘soft elements’.  Notable among these are 
greater consistency and better alignment of incentives with the results agenda and wider 
access to staff learning and knowledge services on design of results-focused strategies, 
programs and projects.   
 
5.30 
Staff Perceptions and Roles in the Results Agenda.  
Feedback from operations staff 
illustrates three continuing challenges for the Bank in advancing the Results Agenda.  First, 
as staff is working to respond to increasing signals to focus on results, they express a strong 
need for more information and guidance on how to design and implement improved 
mechanisms for monitoring and evaluation within their work.  They also worry that the focus 
on results and concerns about levels of new financial commitments and/or shares of scarce 
IDA resources may overwhelm selectivity within the CAS, a close fit with the country’s PRS 
and a strong results orientation.  This perception of inconsistency is compounded by country 
and sector unit managers seeming to assign greater priority to the immediacy of annual 
delivery targets over the vagaries of results that will accrue only over time.  
 
5.31 
Interviews of 50 staff in Bank Operations conducted by the Results Secretariat in 
May 2005 suggest that the desired messages on managing for results are not reaching staff.  
Approximately one-third of those interviewed had virtually no understanding of the Results 
Agenda. Many viewed it as a vague concept that involved high-level meetings with no 
Page  59
Annual Report on Portfolio Performance FY05 
 
   49 
linkages to improving results at the project level.  Staff also reported that there had been 
insufficient commitment to the Results Agenda communicated by senior management, thus 
creating the impression that it was t
he latest “fad.”   
 
5.32 
Second, Regional staff surveyed report lack of technical help in applying a results 
focus in their work. The Results Secretariat has provided guidance and support to several 
country teams. But even this limited support from the center is neither sustainable nor 
capable of reaching enough country teams to broadly improve the quality of results 
frameworks or understanding among staff.  Staff also expressed confusion about the 
complexity of terminology associated with changes in lending and supervision guidelines that 
are intended to increase the results focus in operations.  There was a strong desire expressed 
for support within the Regions through concrete practical training to assist managers and staff 
in focusing on outcomes.   
 
5.33 
Third, there remains lack of clarity and ambivalence about the role of the Networks 
anchor units and sectoral management in relation to the Results Agenda.  Networks anchor 
units are responding in various ways, particularly through developing sectoral results 
frameworks.  But there is scope to strengthen the focus of sectoral management teams and on 
assessing the design, quality review and especially use of project level results frameworks 
and monitoring and evaluation arrangements.    
 
5.34 
In sum, this feedback supports a general conclusion: despite significant progress in 
the development of systems and tools to better enable staff to manage for results and some 
evidence of success in that regard, staff knowledge of the overall Results Agenda and the 
Bank’s approach to managing for results remain nascent.    
 
C
ONCLUSIONS  AND  
R
ECOMMENDATIONS
 
5.35 
This review of progress under the three Results Agenda Pillars,  as well as the 
summary of  status of the FY05 Action Plan,  provide a basis for concluding that significant 
work has gone into better positioning and preparing the Bank to implement the results 
agenda. Achievements include:  
 
·
Country Capacity Pillar.
 
At the country level, experience with PRS 
formulation and implementation as well as the preparation of assistance 
programs aligned with PRSs have served to identify constraints on both the 
demand for and supply of results monitoring capacity.  Commitment from 
political leadership at the country level, some of which was supported 
through WBI activities
33
,
is key, as in other areas of development policy, to 
stimulating integration of results management approaches into the 
mechanisms of governance.  And the Bank, alongside other partners, is 
directing more attention and resources to building statistical and reporting 
capacity at the country level;  
 
·
Bank Pillar.
 
Within the Bank, there has been considerable progress in 
modifying key instruments to strengthen focus on results.  The new country 
33
 
E.g., in Madagascar and the Central African Republic. 
Page  60
Annual Report on Portfolio Performance FY05 
 
   50 
program architecture
—including the development of CAS completion report, 
reviewed independently by IEG and an explicit CAS results framework with a 
mid-term review after about two years to verify progress—is in place.  The 
link between the CAS and the results focus of individual operations and 
pieces of economic and sector work is being strengthened through reform 
procedures for assessing the results of lending and AAA programs. The Bank 
has developed and mainstreamed a new CAS approach that puts a premium 
on development outcomes and measurement of progress to that end. It has 
provided staff guidance and standards on what constitutes an acceptable 
results framework in operational guidance on DPLs and investment lending, 
as well as for CASs. Work to improve the clarity, specificity and use of 
sectoral Results Frameworks is being carried forward through the preparation 
of the Sector Strategy Implementation Update
3
4
and subsequent follow-up 
work.  Translation of the sector Results Frameworks into toolkits and 
guidance for regional staff will be an important second stage that the network 
anchors will be led by.  Finally, the Bank has taken initial steps toward rolling 
out a fully developed results reporting systems by 2007; and 
 
·
Global Pillar. 
 The Bank is active in supporting global dialogue on managing 
for results, which aims at harmonization of approaches, policies, and 
procedures, thus reducing the costs to countries of dealing with the aid 
agencies.  A new spirit of cooperation and joint commitment to results is 
reflected in formal commitments made at the Paris High Level Forum
35
 which 
has developed a framework for monitoring donor and country commitments 
to improving aid effectiveness.  The Bank contributes through the Global 
Monitoring Report, as well as in sharing its experience and approaches to 
quality and managing for results through the donor Working Group on Aid 
Effectiveness.  
 
5.36 
Significant progress has been achieved in the implementation of the Results Agenda 
over the past year; however this report finds—consistent with the Progress Report on that 
agenda—that efforts must be intensified to scale up the Bank’s efforts to strengthen both 
client countries and the institution’s capacity to manage for results.   
 
·
Staff Learning
.
Management should finalize and implement a clear plan for 
training staff on managing for results, with particular attention to clarifying 
definitions and concepts, as well as demonstrating how the many different 
elements of the results agenda fit together and how they relate to the roles of 
various staff.  This training should also focus explicitly on the issue of 
aligning sector tasks with country programs; 
 
·
Results Reporting
.
Design and implementation of the Results Monitoring 
and Analytic System should be taken forward as a matter of priority; and 
34
 
World Bank, 
Sector Strategy Implementation Update FY05
 (CODE2005-0100) November 8, 2005. 
35
 
Paris High Level Forum: Joint Progress toward Enhanced Aid Effectiveness
.
February 28-March 2, 
2005.   
Page  61
Annual Report on Portfolio Performance FY05 
 
   51 
·
Country Planning and Reporting.  
OPCS to provide guidance to country 
teams on how to ensure complementarity between RBCASs, CPRs, and CAS 
Progress Reports and to standardize information across countries as 
appropriate for Bank-wide reporting and analysis. 
 
Page  62
Annual Report on Portfolio Performance FY05 
 
   52 
VI.    RECOMMENDATIONS 
 
A.     
S
TATUS  OF  
FY04 
 
ARPP 
 
R
ECOMMENDATIONS
 
T
ABLE 
6.1:
 
I
MPLEMENTATION  
S
TATUS
 
R
ECOMMENDATION
 
Status 
I. STRENGTHENING LENDING AND PORTFOLIO MANAGEMENT 
·
INF to increase the level of high quality 
AAA to generate demand for lending while 
sustaining current quality of the portfolio. 
Done.  Infrastructure AAA spending was 
increased by $4.2 million, and Infrastructure 
portfolio size increased by $3.2 billion in 
FY05.   
·
IEG to review LICUS lending in FY05 /06 
with a view to improving results. 
In progress. IEG review of Bank lending 
experience with LICUS will be presented to 
the Board by June 2006. 
·
MIC lending to be increased through more 
effective Bank responsiveness to clients. 
MIC lending increased by 40% in FY05. 
·
Ensure sufficient supervision resources to 
riskier projects. 
Partly implemented. AFR allocated additional 
resources to risky projects.  OPCS is drafting 
guidelines for restructuring of risky projects.  
·
Improve Development  Outcomes from 
current level of about 76 percent 
satisfactory to 80 percent plus.
 
Development Outcomes increased to 79 
percent satisfactory in FY05, and the target of 
80 percent plus should be met within one 
year.  
II.  ANALYTICAL AND ADVISORY ACTIVITIES 
·
AAA management.
 
Regions to include 
AAA  in the regular CPPRs: and to examine 
causes for slow delivery and droppage.
 
Not yet implemented.  AAA management 
remains an issue.  Slow delivery and 
droppage continue to be problems. 
·
AAA reporting. 
Shift results reporting and 
tracking and accountability from task to 
country level; and track progress through 
the new CAS progress report. 
In progress.  CAS results reporting, including 
AAA aspects are being included. CASPRs 
have been reviewed by the Board. 
III.  RESULTS AGENDA 
·
Mainstream the RBCAS cycle, including 
the RBCAS Completion Report and the new 
CAS progress report. 
Implemented.  The recommendation to 
mainstream the RBCAS was implemented in 
the second half of FY05.  
·
Management to provide guidance on how 
sector and country program priorities should 
be aligned better. 
In progress.  Guidance on alignment of sector 
and country program priorities will be 
included in the upcoming results agenda 
progress report to CODE. 
Page  63
Annual Report on Portfolio Performance FY05 
 
   53 
B.     
FY05 
 
ARPP 
 
K
EY  
R
ECOMMENDATIONS
 
S
TRENGTHENING  
L
ENDING  AND  
P
ORTFOLIO  
M
ANAGEMENT
 
·
Quality-at-Entry (QEA).
 
Quality-at-entry in low CPIA countries should be 
improved from current 83 percent satisfactory level to 90 percent satisfactory; 
 
·
Quality of Supervision and Portfolio Risk.  
 Candor and realism in project 
risk rating should be improved specially for AFR and ECA regions and the 
INF Network;   
 
·
Sector Boards
.
Environment, Health, Private Sector Development and Public 
Sector Governance should continue to improve Development Outcomes to 
reach 75 percent plus range on a consistent basis; and 
·
Fraud and Corruption.  
OPCS, in collaboration with INT should review the 
findings of INT cases to identify potential weaknesses in current fiduciary 
policies and propose remedial measures. 
 
A
NALYTICAL  AND  
A
DVISORY  
A
CTIVITIES  
 
·
Improving Management Oversight of Country AAA.
 
Regions should revisit 
arrangements for effective oversight of country AAA from inception through 
implementation; 
 
·
Building Coalitions for Change through Effective AAA Dissemination.
 
Regions should ensure that dissemination of AAA is planned and funded as 
an integral part of AAA program design and management; and
 
·
Addressing Delays in AAA Delivery.
 
OPCS should examine the issues and 
factors associated with the reported increase in elapsed time to complete 
AAA tasks in FY05.
 
R
ESULTS  
F
RAMEWORK  
I
MPLEMENTATION
 
·
Staff Learning
.
Management should finalize and implement a clear plan for 
training staff on managing for results; 
 
·
Results Reporting
.
Design and implementation of the results reporting 
system should be taken forward as a matter of priority; and 
 
·
Country Planning and Reporting.  
OPCS to provide guidance to country 
teams on how to ensure complementarity between RBCASs, CPRs, and CAS 
Progress Reports and to standardize information across countries as 
appropriate for Bank-wide reporting and analysis. 
Page  64
Annual Report on Portfolio Performance FY05 
 
   54 
ANNEX 1 
 
GUARANTEES 
 
1. 
So far, 29 guarantees for 27 projects (8 partial credit, 19 partial risk and 2 policy 
based guarantees) have been approved by the Board for a total amount of $2.7 billion (Figure 
1).  Of these, 10 guarantees were issued on a stand-alone basis and 17 guarantees are 
associated with Bank loans to projects.  Seventeen guarantees, with exposure of US$1.389 
million
36
 equivalent, remain in force.  Since mainstreaming in 1994, Bank guarantees have 
been able to catalyze more than US$11 billion in private capital for infrastructure in client 
countries (Figure 2). 
 
F
IGURE 
1:
 
C
UMULATIVE  
G
UARANTEED  
A
MOUNTS  
(F
Y
94-05) 
(US$  Million) 
 
$207
$511
$628
$728
$1,138
$1,438
$1,749
$1,908
$2,108
$2,183
$2,283
$2,702
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
F
i
s
c
a
l
Y
e
a
r
F
IGURE 
2:
 
A
CCUMULATED  
P
RIVATE  
C
APITAL  
M
OBILIZED   AS  OF   
J
UNE 
30, 2005 
(US$  Million) 
 
$270
$925
$1,620
$1,720
$3,016
$4,321
$5,669
$6,669
$6,669
$7,074
$7,995
$11,371
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
F
i
s
c
a
l
Y
e
a
r
36
 
As of June 30, 2005. 
Page  65
Annual Report on Portfolio Performance FY05 
 
   55 
2. 
During fiscal year 2005 the Board of Executive Directors approved six partial risk 
guarantees and a guarantee facility.  This would lead to the mobilization of more than two 
billion dollars in private capital to client countries.  These included a number of innovative 
structures including two guarantees issued to support privatization of electric distribution 
companies
—a critical area for improving the performance of the electricity sector.  
 
3. 
In November 2004, the Board approved a partial-risk guarantee of US$50 million to 
support the West African Gas Pipeline.  The project is a regional energy infrastructure project 
consisting of a primarily offshore pipeline system that will transport natural gas from a 
terminal near Lagos, Nigeria to Takoradi, Ghana with spurs to Togo and Benin.  This is the 
first regional pipeline project supported by an IDA guarantee. 
 
4. 
In December 2004, the Board approved a EURO 60 million (US$76.7 million 
equivalent) partial-risk guarantee in support of the Banat and Dobrogea Electricity 
Distribution Companies in Romania.  This is the first guarantee in support of a privatization, 
and will facilitate the successful privatization of the remaining six electricity distribution 
companies and the launch of generation privatizations. 
 
5. 
Also in December 2004, the Board approved an amendment to an existing credit to 
Uganda in support of the Privatization and Utility Sector Reform Project in Uganda.  The 
project is aimed at supporting the concessioning of the distribution assets of the publicly 
owned Uganda Electricity Distribution Company Limited to a Ugandan company (UMEME 
Limited). 
 
6. 
In March 2005, the Board approved a US$42 million partial risk guarantee for the 
Nam Theun II Hydropower Project in Lao PDR, one of the largest private sector-led project 
financings in East Asia.  The IDA guarantee will mitigate specific risks relating to political, 
regulatory and governmental performance, and debt service default resulting from activities 
and actions under the GOL’s control.  It is expected that the IDA Partial Risk Guarantee will 
help in establishing a track record for Lao PDR’s performance for future private projects. 
 
7. 
In May 2005, a partial risk guarantee for US$7.2 million was approved by the Board 
in support of the Kounoune Power Project in Senegal. The project is the first of two 
independent power projects (and of two guarantees originally proposed) under the Electricity 
Efficiency Enhancement Project.  The IDA guarantee was required to provide comfort to 
investors and demonstrate the GOS’s
 
commitment to the sector. 
 
8. 
Also in May 2005, a partial risk guarantee facility of US$200 million in support of 
private infrastructure projects in Peru was approved by the Executive Directors.  The facility 
aims at improving the attractiveness of Peru’s future infrastructure projects to private 
investors to make them suitable for private partnership development, maximize private sector 
funding and minimize the required public contributions.  There is currently no exposure 
under the facility as no projects have been approved to date. 
 
9. 
Finally, in June 2005 the Board approved a partial risk guarantee for US$38 million 
for the Bumbuna Power Project in Sierra Leone, a 50 MW run-of-the-river power plant.  The 
IDA Partial Risk Guarantee was utilized to support the commercial financing used to 
complete the construction under the existing contracts.  The Bumbuna power project supports 
Page  66
Annual Report on Portfolio Performance FY05 
 
   56 
8%
24%
21%
11%
13%
23%
AFR
EAP
ECA
LCR
MNA
SAR
the country’s Interim Poverty Reduction Strategy Paper and the national Recovery Strategy, 
of which infrastructure/power supply is a key element. 
 
10. 
The Regional distribution of Guarantees is shown in Figure 3. 
 
F
IGURE 
3:
 
G
UARANTEE  
A
LLOCATION  BY  
R
EGION
 
11. 
There are several operations currently under preparation which are expected to 
achieve Board approval during fiscal 2006.  This includes partial risk guarantees in support 
of projects in the power generation, road, railways, and aluminum smelting sectors as well as 
privatization of power distribution assets. 
 
P
ROJECT  
P
ERFORMANCE  UNDER  
G
UARANTEES
 
12. 
The performance of the guarantee portfolio is satisfactory. During FY05 all projects 
supported by Bank guarantees performed according to the contractual parameters and 
operation and maintenance was adequate.  All projects currently under the construction phase 
are on schedule and within budget and no significant problems have been reported. 
 
13. 
In May 2005, the government of Russia requested closure of the Russia Coal and 
Forestry Guarantee facility as no individual projects had been approved under the Facility 
since it became effective in August 2003.  The facility was approved by the Board in fiscal 
2001 for the purpose of issuing political risk guarantee contracts to attract private loans for 
commercially viable projects in the coal and forestry sectors in the country.  
 
14. 
In early July 2005, HUBCO (the project company and borrower of the Hub Power 
complex in Pakistan) made the last installment of its senior debt facility including the portion 
covered under an IBRD partial risk guarantee provided in support of the project. The 
guarantee, which was approved as part of the Expanding Cofinancing Operations program in 
1994, will however remain in force until the Final Demand Date in March 2006.  
 
15. 
Supervision of guarantees, especially “stand alone guarantees,” is different from 
loans, as guarantees need to be supervised until they are released, canceled, or have reached 
the end of their term (loans are supervised during disbursement period only).  As envisaged, 
Page  67
Annual Report on Portfolio Performance FY05 
 
   57 
lenders, whose debt the Bank guarantees, have been playing a key role in supervision of these 
projects.  Stand-alone guarantees are monitored regularly based on information contained in 
progress reports from the lenders and/or borrowers.  There are a few cases where no 
budgetary resources have been allocated after the completion of construction of the project 
for follow-up on the lenders
’
reports. Specific areas needing Bank attention, such as 
government performance of its contractual obligations and compliance with stipulated 
sectoral and financial covenants, are monitored as part of the Bank's regular supervision 
missions.  When guarantees are provided along with loans, two critical parameters are 
monitored to ensure the success of these guarantees: (i) project performance, to ascertain to 
what extent projects supported by guarantees meet their financial and technical objectives; 
and (ii) monitoring of government performance vis-à-vis their contractual obligations 
covered by the guarantee. 
 
Page  68
Annual Report on Portfolio Performance FY05 
 
   58 
ANNEX 2 
 
THE PORTFOLIO
—AN OVERVIEW TABLE 
Fiscal Year
2000
2001
2002
2003
2004
2005
Net Commitments
(US$ Million)
Opening Balance 
a/
123,799
117,293
108,221
104,621
97,263
95,195
 
IBRD
85,580
79,761
69,295
64,741
57,336
52,791
 
IDA
38,219
36,403
37,346
37,860
37,436
39,763
 
TF
0
1,129
1,580
2,020
2,490
2,640
Approvals in FY
15,591
17,508
19,939
18,834
20,393
22,781
 
IBRD
10,919
10,487
11,452
11,231
11,045
13,334
 
IDA 4,358
6,764
8,068
7,283
9,035
8,559
 
TF 314
257
420
321
313
887
Cancellations in FY 
c/
3,566
4,652
1,881
3,267
1,792
2,092
 
IBRD
3,378
4,410
1,557
2,899
1,437
1,588
 
IDA
188
242
323
368
355
504
 
TF
00
000
0
Exits
19,410
22,048
21,682
24,242
20,721
20,081
 
IBRD
13,287
16,340
14,302
16,499
14,056
10,734
 
IDA
6,041
5,598
7,252
7,532
6,333
9,021
 
TF
a/
82
110
129
212
332
325
Errors in reconcilliation
879
120
24
1,316
52
281
PORTFOLIO: end-year balance 
e/
117,293
108,221
104,621
97,263
95,195
96,084
 
Real
d
/
123,988
113,678
108,754
99,654
96,351
96,084
Number of Projects
Opening Balance
1,544
1,591
1,562
1,544
1,519
1,469
 
IBRD 
b/
796
768
718
680
642
582
 
IDA
748
737
739
748
753
764
 
TF
0
86
105
116
124
123
Approvals in FY
242
256
253
260
266
308
 
IBRD 
b/
97
91
96
99
87
116
 
IDA
126
134
133
141
158
158
 
TF
19
31
24
20
21
34
Exits
279
283
275
289
320
317
 
IBRD 
b/
126
141
133
138
149
133
 
IDA
139
133
125
139
147
160
 
TF
14
9
17
12
24
24
Errors in reconcilliation
84
-2
4
4
4
3
End-Year Balance
e/
1,591
1,562
1,544
1,519
1,469
1,463
a/   
Trust Fund data for Opening Balance, Cancellations in FY and Exits are not available in SAP/Business Warehouse 
(BW) prior to FY00. 
b/   
In the Business Warehouse the No. of Projects for IBRD Source of Funds includes Blend. 
c/   
Cancellations represent partial reduction in a project budget but not project closure ("Exit").  They therefore reduce 
commitment dollars but not the number of projects in the portfolio. 
d/   
FY05 prices, based upon OECD-DAC deflator for IBRD/IDA lending commitments. 
e/   
End balance may not equal Opening balance plus approvals minus cancellations and exits due to synchronization errors 
between systems. 
Page  69
Annual Report on Portfolio Performance FY05 
 
   59 
ANNEX 3 
 
BASIC PORTFOLIO DEFINITIONS AND DATA SOURCES 
 
P
ORTFOLIO  
D
EFINITIONS
 
1. 
The active portfolio covered by the FY05 ARPP includes all IBRD, IDA, GEF, 
Montreal Protocol, and Special Financing operations approved through FY05 and excludes 
those that were completely cancelled and/or closed during the fiscal year.  Starting in FY00, 
the definition of the active portfolio was expanded to include GEF, Montreal Protocol, and 
Special Financing operations in addition to IBRD and IDA.  Data on portfolio size and 
composition has been retrofitted where possible for comparability purposes.  All dollar 
figures are in nominal terms unless otherwise stated.  IBRD / IDA commitment deflators 
varied by less than 6 percent between 2000 and 2005.  Terms used in reference to the 
portfolio include: 
 
·
Active Portfolio. 
 
All loans approved through FY05 excluding those which 
were closed or completely cancelled prior to the end of the fiscal year.  The 
active portfolio includes GEF, IBRD, IDA, Montreal Protocol, and Special 
Financing operations; 
 
·
Actual Problem Projects
.
Projects for which Implementation Progress is 
rated unsatisfactory and/or the Development Objectives are rated as not likely 
to be achieved;  
 
·
Country Client Groupings.
 
Countries are grouped according to the level of 
their income, size, risk and performance for purposes of portfolio trend 
analysis.   IBRD Investment Grade Countries includes countries that have 
high credit ratings.  There are some 28 countries in this group.  The LICUS 
country group (severe and core only) includes 25 countries with low CPIA 
ratings.  China and India, with populations over one billion each, are in 
individual categories because of their size.   The other three groups are IBRD 
Only, IDA Only, and Blend.  They are categorized according to IDA/IBRD 
eligibility criteria.  Country groupings are mutually exclusive.  Therefore the 
IBRD Only group excludes IG and China.  The Blend group excludes India, 
and the IDA only group excludes LICUS; 
 
·
Commitments at risk.
 Commitments at risk of not meeting their development 
objectives. Includes commitments associated with both actual and potential 
problem projects; 
 
·
CPIA.
 
The Country Policy and Institutional Assessment (CPIA) is an annual 
exercise in which country teams provide input to OPCS in order to assess the 
quality of each borrower's policies and institutions in the areas generally 
considered to be relevant to economic growth and poverty reduction and 
effective aid use;  
 
Page  70
Annual Report on Portfolio Performance FY05 
 
   60 
·
Deflator.  
Where so indicated nominal net commitments have been converted 
to real terms by using IBRD/IDA Commitment Deflator converted to 2005 $ 
by using an index of 0.946 for FY00, 0.952 for FY01, 0.962 for FY02, 0.976 
for FY03, and 0.988 for FY04; 
 
·
Development Objectives.
 
The rating of an operation’s DO is based on the 
likelihood of attaining the development objectives set in the Project Appraisal 
Document or as formally revised during implementation.  This rating may be 
satisfactory or unsatisfactory and is the responsibility of the task team leader, 
who must report on it annually in the Implementation Status and Results 
Report.  The DO rating takes into account not only implementation progress, 
but also other factors such as inappropriate design, unforeseeable adverse 
economic and financial developments, price fluctuations of project outputs, 
and changes in government policy; 
 
·
Disbursement Ratio.
 
The ratio of disbursements during the fiscal year to the 
undisbursed balance at the beginning of the fiscal year, investment operations 
only; 
 
·
Implementation Progress (IP). 
 
The IP rating is based on an overall judgment 
of implementation performance in relation to the benchmarks in the Project 
Appraisal Document or as formally revised during implementation.  The 
rating is the responsibility of the task team leader, who reports it generally 
every six months in the ISR; 
 
·
Net Commitments
.
Total commitments net of cancellations for all projects in 
the active portfolio; 
 
·
Net Disconnect.
 
The difference between the percentage of projects rated as 
unsatisfactory by IEG and the percentage rated by the regions in the final ISR 
as unsatisfactory for achieving their development objectives; 
 
·
PIP Country.
 
Countries designated for intensive portfolio monitoring and 
supervision.  Normally, PIP countries are those with 50 percent plus of 
projects and/or 35 percent plus of commitments at risk, with more than eight 
active projects and/or $250 million in commitments.  Once designated for 
intensive monitoring, graduation to normal status requires evidence of robust 
and sustainable improvement; 
 
·
PIP Project
.
A
project with more than $200 million in commitment at risk; 
 
·
PIP Sector.  
Sectors designated for intensive portfolio monitoring and 
supervision.  Normally, PIP sectors are defined as those with 50 percent plus 
of projects and/or 35 percent plus of commitments at risk, with more than 20 
active projects and/or two billion dollars in net commitments.  Once 
designated for intensive monitoring, graduation to normal status requires 
evidence of robust and sustainable improvement; 
Page  71
Annual Report on Portfolio Performance FY05 
 
   61 
·
Potential Problem Projects.
 
Projects which are rated satisfactory on IP and 
DO but have other risk factors historically associated with unsatisfactory 
outcomes. The criteria to consider projects as potential problem projects are 
described below; 
 
·
Proactivity Index.
 
The proportion of projects rated as actual problem 
projects twelve months earlier that have been upgraded, restructured, 
suspended, closed, partially (20 +%) or fully canceled; 
 
·
Projects-at-Risk
.
Projects at risk of not meeting their development 
objectives. Projects at risk is the sum of actual problem projects and potential 
problem projects; 
 
·
Quality-at-Entry.
 
A
periodic exercise conducted by QAG to measure the 
quality-at-entry of projects approved by the Bank over a specific period.  The 
most recent exercise, QEA7, covered all projects approved by the Board in 
FY2004
–
2005;
·
Quality of Supervision (QSA).
 
A
periodic exercise conducted by QAG to 
measure the quality of supervision for projects which were under supervision 
during a specific period.  QSA6 was the last Quality of Supervision exercise 
and covered FY2003
–
2004;  
 
·
Realism Index.
 
The ratio of actual problem projects to total projects at risk; 
and 
 
·
Supervision Intensity.
 
Direct supervision costs divided by the number of 
projects under active supervision. 
 
M
EASURING  
P
ORTFOLIO  
P
ERFORMANCE
 
2. 
Experience shows that IP and DO ratings have tended to be over-optimistic when 
compared to the rating that projects are given by the Operations Evaluation Department upon 
completion.  To address this deficiency, the FY96 ARPP introduced the concept of projects at 
risk as the basic measure of portfolio performance.  
 
3. 
Projects at risk include both actual and potential problem projects.  Potential problem 
projects are those that, although rated as satisfactory for both IP and DO, are affected by 
factors likely to bring about an eventual unsatisfactory outcome.  These projects are 
iden
tified by criteria (“flags”) that take into account not only various aspects of actual 
implementation experience, but also other relevant factors such as economic management 
and past portfolio performance in the country.  Specifically, potential problem projects are 
identified as projects exhibiting three or more of the following twelve risk “flags” for 
investment projects: 
 
Page  72
Annual Report on Portfolio Performance FY05 
 
   62 
·
Legal Covenants
.
Any of the Critical Legal Covenants rated "Not Complied 
with" in the last ISR; 
 
·
Safeguards. 
 Ratings of MU, U, or HU on any Applicable Safeguard Policies 
in the last ISR; 
 
·
Counterpart Funds.
 
Counterpart Funding rated MU, U, or HU in the last 
ISR (formerly the Financial Performance Flag); 
 
·
Monitoring and Evaluation.
 
Monitoring and Evaluation rated MU, U, or HU 
in the last ISR; 
 
·
Financial Management.
 
Financial Management rating of MU, U, or HU in 
the last ISR; 
 
·
Procurement.
 
Procurement rated MU, U, or HU in the last ISR; 
 
·
Project Management.
 
Project Management rated MU, U, or HU in the last 
ISR; 
 
·
Long-term Risk.
 
Project with IP or DO rated MU, U, or HU for any 24 
months cumulative during the life of the project.  This flag is removed when 
the project has been rated MS, S, or, HS for PIP and DO for the previous 24 
months; 
 
·
Effectiveness Delays.
 
Elapsed time between Board approval and 
effectiveness of more than nine months for investment, more than six months 
for policy-based lending and more than three months for emergency 
operations.  This flag is turned off three years after Board approval; 
 
·
Disbursement Delays.
 
Disbursement delays of 24 months or more for 
investment operations.  Delay is calculated based on the initial or formally 
revised disbursement schedule for the project; 
 
·
Country Environment.
 
Located in a country with weak economic 
management (CPIA rating of less than 3.0 or a scale of 1 to 6).  Once 
"flagged", the CPIA must exceed 3.5 for the flag to be removed.  This flag 
also includes countries which are in a conflict or post-conflict environment; 
and 
 
·
Country Record.
 
Located in a country with a net disconnect of 20 percent or 
more, or where net commitments associated with unsatisfactory projects (as 
rated by IEG) represent more than 40 percent of commitments for completed 
projects over the previous five years.  In cases where the sample of IEG 
evaluations is too small, ICR data, data on mature projects, and experience of 
other donors is used to arrive at a robust conclusion.  This flag also captures 
Page  73
Annual Report on Portfolio Performance FY05 
 
   63 
countries with less than satisfactory CAE ratings by IEG in the prior five 
fiscal years. 
 
For development policy lending operations, potential problem projects are identified 
as projects with two or more of the following seven flags (at least one project specific). 
 
4. 
The at-risk ratings provide a better picture of the current state of the portfolio than 
IP/DO ratings taken in isolation, because they are more comprehensive and provide an early 
warning of potential failures and their causes. 
 
5. 
The concept is not perfect, however.  It has been noted that some operations that get 
flagged as “risky” are subsequently evaluated as satisfactory because risks have been 
addressed, and others that are evaluated as unsatisfactory were not captured by the system.  
To correct for this, the Regions can override the at-risk rating with a thirteenth flag first 
introduced in FY97—the golden flag.  In each of the fiscal years from FY03
–
05
approximately 1 percent of the active portfolio had the golden flag.  A golden flag for a 
project is turned off if the project becomes unsatisfactory for IP or DO, or once the total 
number of at risk flags for that project goes below three.  If the project subsequently gets 
three or more at-risk flags, a new request and justification for a golden flag is required.  
 
D
ATA  
S
OURCES
 
6. 
Data for the statistical tables are taken mainly from the latest available ISR.  The ISR 
ratings used in the ARPP were “frozen” by ISG at COB June 30, 2005.  Other data sources 
include the Loan Accounting System for data on disbursements and cancellations and the 
Institutional Management System for data on supervision costs. 
 
P
ORTFOLIO  
C
LASSIFICATIONS
 
7. 
The active portfolio is classified in the ARPP by region, network/sector board, sector, 
theme and lending instrument.
37
 
37
 
These classifications are assigned by Task Team Leaders during project preparation.  
While the classification by Region is reliable, there are greater ambiguities and overlaps 
in the classification by sector and lending instrument; e.g., projects which belong to the 
Urban Development sector board may be misclassified by the task team in other sector 
boards. 
Page  74
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Page  75
Annual Report on Portfolio Performance FY05                                                                                             65 
    
 
ANNEX 4 
 
FY06 PIP COUNTRIES AND PIP PROJECTS  
 
FY06
 
PIP 
 
C
OUNTRIES
 
Region
Country
No. of Projects
Net 
Commitment 
US$ Million
Projects at 
Risk (%)
Commitment 
at Risk (%)
AFR
Chad
8
303
75
84
AFR
Eritrea
8
294
63
65
AFR
Madagascar
14
857
29
40
AFR
Malawi
13
376
31
35
AFR
Niger
9
264
44
46
AFR
Nigeria
17
1,511
41
43
AFR
Zambia
12
502
50
52
ECA
Ukraine
12
796
42
38
ECA
Uzbekistan
7
285
43
54
LCR
Argentina
33
4,624
45
37
LCR
Dominican Republic
9
383
56
46
LCR
Ecuador
10
307
60
72
MNA
Lebanon
7
322
71
67
Total
159
10,824
47
44
FY06 
 
PIP 
 
P
ROJECTS
 
Region
Country Project 
Name 
Network 
Net 
Commitment 
US$ Million 
FY05 
PIP 
Project
EAP 
China 
CN - WANJIAZHAI WATER 
TRA 
ESSD 325 N 
ECA 
Turkey 
BASIC ED 2 (APL #2) 
HDN 
300 
Y 
LCR 
Argentina 
AR Cordoba PRL5 
PREM 
303 
Y 
LCR 
Argentina 
AR Santa Fe Provincial Reform 
PREM 
330 
Y 
LCR 
Argentina 
AR ECONOMIC RECOVERY  
SUPPORT SAL 
FSE 500 
N 
LCR 
Argentina 
AR National Highway Asset 
Management 
INF 200 
N 
LCR 
Mexico 
MX: III BASIC HEALTH CARE 
PROJECT 
HDN 350 
Y 
SAR Bangladesh
BD Private Sector Infrastructure 
Dev 
INF 235 
Y 
SAR India 
Tech/Engg 
Quality 
Improvement Project 
HDN 210 
N 
SAR India 
KERALA 
STATE 
TRANSPORT 
INF 
255 
N 
Total 
 
  
  
3,008 
 
Page  76
Annual Report on Portfolio Performance FY05                                                                                             66 
    
 
ANNEX 5 
 
AFRICA PORTFOLIO IMPROVEMENT PLAN 
 
P
ORTFOLIO  
S
IZE  AND  
T
RENDS  IN  
P
ORTFOLIO  
P
ERFORMANCE
 
1.
 
Portfolio Size and Characteristics.
 
AFR is a large, complex region with 47 countries 
and a large portfolio of projects.  The Region recorded a growth of $1.4 billion in net 
commitments over the 1997
–2005 period.  The increase in the average size of 
loans/credits/grants in AFR over the period coincided with the increased use of different 
lending instruments, including: Adaptable Program Loans, Sector-wide Approaches; 
Emergency Recovery Loan and Poverty Reduction Support Credit (PRSCs).  Over the same 
period, Infrastructure accounted for 39 percent of net commitments, followed by HD (27 
percent), ESSD (16 percent) and PREM (9 percent).   
 
F
IGURE 
1:
 
A
LLOCATION  OF  
C
OMMITMENTS  PER  
CPIA 
 
C
ATEGORY
 
1%
1%
25%
65%
34%
12%
3%
4%
32%
20%
21%
88%
71%
96%
43%
43%
1%
1%
16%
25%
AFR
EAP
ECA
MNA
LCR
SAR
2-2.9
3-3.4
3.5-3.9
4
and above
2.
 
In FY05, AFR had an active portfolio of $16.8 billion, including 14 operations 
covering multiple countries. A quarter of the commitments are in countries with CPIA ratings 
of less than 3, and only 1 percent in countries with CPIAs of 4.0 and above.  The CPIAs 
capture some dimensions of a unique feature of the Region:  several pockets of instability 
which increase the riskiness of the portfolio.  The percentage of the portfolio at risk (3 or 
more flags) is likely to be higher than other regions i.e., a significant proportion of projects 
will enter the portfolio with two flags—simply because of the fragility of many states in the 
region.   
 
3.
 
Trends in Performance.
 
Starting from a very low base of only 59 percent at the 
beginning of IDA 11, Africa reached 70 percent satisfactory outcomes in FY04, the 
penultimate year of IDA 13.  In FY05, 79 percent of the projects that exited the portfolio 
were rated MS or better by IEG (based on about a half of total exits).  At a broader level, the 
improved portfolio outcomes mirror improvements in the economic performance of many 
Page  77
Annual Report on Portfolio Performance FY05                                                                                             67 
    
 
countries in the region.  CPIA scores have been increasing over the last ten years and the 
number of African countries with scores of 3.5 or higher has increased from 6 to 20.
3
8
T
ABLE 
1:
 
S
ATISFACTORY  
O
UTCOMES  BY  
R
EGION  
(FY 97
–05) 
 
Region
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
AFR
5960
5061637070
7079
EAP
83
79
81
84
69
80
74
88
82
ECA
6184
8583798575
8495
LCR
8375
7680788083
7883
MNA
6267
6082927070
6389
SAR
78
69
67
87
84
74
78
89
80
Bankwide
71
71
69
76
75
77
75
79
86
4. 
AFR’s improved performance is mirrored in overall improvements in the 
performance of the network families.  The performance of Infrastructure (INF) is particularly 
notable.  In FY97, INF performed below the Region’s average (48 percent vs. 59 percent); 
but by FY04, it was the best performing network in the Region (89 percent vs. 70 percent). In 
FY02
–
04, Transport was the top performing sector in AFR followed by Urban Development 
(Urban) and Water Supply  and Sanitation (WSS); with Urban and WSS performing above 
the Bank-wide average.  
 
5. 
The sustained improvements in performance are remarkable given the fragility and 
instability of many states.  Instability persists in many parts of the region ranging from C
ôte 
d’Ivoire to the Darfur region in Sudan to the eastern portions of the DRC.  Corruption 
remains a major challenge to weak governing institutions and HIV/AIDS continues to 
threaten many African lives.  Nevertheless, from Angola in the south to even Sudan in the 
north, and from Sierra Leone and Liberia in the West to Burundi in the center/east, peace and 
stability are returning to parts of Africa.  In South Africa, Nigeria, Zambia, Malawi and other 
countries, leaders have taken actions against corruption and corrupt officials.  Multi-party 
democratic elections and the smooth transition of leadership have taken place in several 
countries.  In sum, Africans are demanding more of their governments and their leaders and it 
is this groundswell, more than anything else, that accounts for the Region’s improved 
performance.   
 
6.  
Africa’s steadily improving outcome indicators were supported by a number of 
measures introduced by the Region to manage the riskiness of the portfolio.  These include: 
 
·
Mandatory Quality Enhancement Reviews since July 2003 to ensure that all 
new operations are ready at entry and focused on results; this has led to a 
significant reduction in conditions of effectiveness, simpler operations with 
better ownership by clients with concomitant benefits during implementation 
and for results on the ground; 
 
·
Monthly clinics on various aspects of project design, supervision, and 
implementation completion reporting designed to provide hands-on support to 
TTLs; 
 
38
 
See “
Meeting the Challenge of Africa’s Development:  A World Bank Group Action Plan
.” 
Page  78
Annual Report on Portfolio Performance FY05                                                                                             68 
    
 
·
Monthly workshops on project design and implementation support for staff 
primarily located in Country Offices, clients, and staff from partner 
institutions; 
 
·
Quarterly portfolio monitoring reporting to the Regional Leadership Team at 
a
meeting chaired by the Regional Vice President (RVP); 
 
·
Special studies on portfolio issues.  A study on Project Restructuring was 
recently completed and presented to the RLT. The study was designed to 
better understand the reasons for the decline of project restructuring in the 
Region, and to provide the basis for designing incentives for project 
restructuring and for updating the
 Region’s processes and procedures; 
 
·
An escrow account was established in FY06 and managed by the Quality and 
Knowledge Department to provide additional supervision funding for long-
term problem projects; 
 
·
A
Rapid Screening for Disconnect/Realism has been established in the region 
which involves independent assessment by AFTQK of all projects prior to 
closing, providing the basis for CMUs/SMUs to further assess the realism of 
DO/Outcome ratings;  
 
·
Results-based Country Program Reviews and Country Portfolio Performance 
Reviews have been carried out for Zambia, Malawi, Ghana, and Nigeria; 
while highly innovative CPPRs have been conducted for Chad, Ethiopia, 
Tanzania, Uganda and Mozambique;  
 
·
"Quality Notes" are published electronically and distributed to staff on a bi-
weekly basis.  These innovative notes provide the latest information on 
policies, procedures, best practices etc. on project design as well as on 
portfolio monitoring and supervision; and 
 
·
The CMUs and SMUs have continued to hone their capacities to monitor and 
manage regional, country and sectoral portfolios.  
 
T
HE  
A
FRICA  
A
CTION  
P
LAN  AND  
I
MPLICATIONS  FOR  
P
ORTFOLIO  
M
ANAGEMENT
 
7.  
Despite Africa’s improved performance, it remains behind other regions on most of 
the MDGs.  Even if recent progress is sustained, the Region will fall far short of the 2015 
target.  The challenge therefore is to accelerate the rate of development by building upon the 
positive trends of the last ten years.  This will entail both increasing the volume and 
efficiency of aid; and with these objectives in mind, a strategy and Action Plan for enhancing 
and expanding IDA’s business with Africa were approved by the Board.  Based on the 2004 
Strategic Framework for IDA’s Assistance to Africa, the Action Plan places particular 
emphasis on: assisting countries to achieve as many Millennium MDGs as possible by 2015; 
shared (i.e., equitable) growth and trade; a robust Results framework; a strong commitment to 
Partnerships; and building the capacity of states in public governance.  As regards the 
existing portfolio and achieving results on the ground during the immediate IDA-14 period 
Page  79
Annual Report on Portfolio Performance FY05                                                                                             69 
    
 
(FY06
–
08), the AAP will build on the solid foundation of portfolio management practices 
which already exist in the region.
 
8. 
A Portfolio Management Action Plan is embedded in the AAP.  It has a number of 
targets as given in the table below.  
 
T
ABLE 
2:
 
PMAP 
 
T
ARGETS 
 
PMAP Targets 
FY05 
Base 
FY06 FY07 FY08 
1.  % of Portfolio at Risk 
 
28 
25 
20 
15 
2.  Realism  
 
71 
80 
85 
90 
3.  Proactivity 
 
78 
85 
85 
90 
4.  Quality at Entry 
 
88 
90 
90 
90 
5.  Quality of Supervision 
 
85 
85 
90 
90 
6.  IEG Evaluated satisfactory outcomes 
 
71 
75 
78 
80 
7.   Adopting results-driven country portfolio 
reviews 
 4 
6 10 15 
8.   Improve the quality-at-entry and increase 
satisfactory use of M&E 
·
No. of projects with Impact Evaluation 
·
%
of
new operations with satisfactory use 
of M&E 
·
%
of
projects with satisfactory use of 
M&E during supervision 
 
40 
 
70 
 
65 
 
60 
 
75 
 
70 
 
80 
 
85 
 
75 
 
90 
 
95 
 
80 
9.   Raise share of Implementation Status and 
Results Reports with satisfactory baseline 
data for monitoring 
 80 
82 84 85 
10. Raise share of ISRs for new operations with  
satisfactory DOs 
 80 
85 90 95 
11. Raise the share of Implementation Completion 
Reports with satisfactory data on project 
outcomes 
 70 
75 80 85 
9.  
In FY06, PMAP will focus on seven Portfolio Improvement Program countries as 
well as on the Region’s eight largest portfolios.  The focus will entail comprehensive and 
results oriented CPPRs.  The table below shows that the portfolios of these 15 countries will 
capture about 62 percent of the projects in the Region’s portfolio and close to 77 percent of 
net commitments.  Other active borrowing countries will continue to receive the same 
amount of scrutiny and review of problem projects and other required portfolio management 
activities.    
 
Page  80
Annual Report on Portfolio Performance FY05                                                                                             70 
    
 
T
ABLE 
3:
 
PIP 
 
C
OUNTRIES  AND  
O
THERS  
S
HOWING  
N
UMBER  OF  
P
ROJECTS  AND  
N
ET  
C
OMMITMENTS
 
Country 
 Number 
of 
Projects 
Net Commitments 
(US$ Million) 
PIP Countries 
 
1.  Malawi 
 
13 
376 
2.  Nigeria 
 
19 
1,883 
3.  Madagascar 
 
16 
1,032 
4.  Zambia 
 
12 
502 
5.  Eritrea 
 
8 
294 
6.  Niger 
 
8 
224 
7.  Chad 
 
8 
297 
Sub Total 
 
84 
4,608 
Other Countries 
 
 
 
8.  Tanzania 
 
22 
1,391 
9.  Uganda 
 
20 
1,064 
10.  Mozambique 
 
17 
924 
11.  Ethiopia 
 
23 
1.815 
12.  Congo, DR 
 
8 
1,332 
13.  Ghana 
 
18 
1,166 
14. Kenya 
 
13 
635 
15.  Senegal 
 
15 
642 
Sub Total 
 
136 
8,969 
 
Total
 
220 13,577 
Africa Region 
 
357 17,496 
%
share PIP + other countries 
61.6 77.6 
10.  
The PMAP will build on portfolio monitoring and management processes and 
procedures which already exist.  AFR will work with and seek guidance from OPCS on 
project restructuring, the use of simplified procedures; and on finding ways to utilize flexible 
policies and guidelines to solve problems and enhance the achievement of results.  AFR will 
actively consult with the Legal Department on restructuring, cancellations, closings, and 
suspensions if necessary, and on the use of results frameworks at the project level. 
 
11. 
AFR is also cognizant that portfolio management and implementation support on the 
part of the Bank also requires ownership and active partnership with clients and other 
development institutions.  The region will work with the World Bank Institute (WBI), the 
Joint Africa Institute and other partner institutions, to expand a program of training of staff, 
clients and partners together, on country systems including project design and 
implementation of donor-assisted projects; monitoring and evaluation including impact 
evaluation, and procurement and financial management.  
 
12. 
The PMAP also addresses a number of actions called for under the Paris Declaration 
and IDA 14 Results Framework.  Specifically, it will:  monitor and report on sector outputs in 
all new IDA operations in four sectors i.e., health, education, water supply, and rural roads; 
Page  81
Annual Report on Portfolio Performance FY05                                                                                             71 
    
 
raise the share of Implementation Status and Results Reports with satisfactory baseline data 
for outcome monitoring; and raise the share of Implementation Completion Reports with 
satisfactory data on project outcomes.  The results focus of the PMAP will be further 
mainstreamed by: the adoption of results-driven country portfolio reviews; and piloting 
regional sector reviews  
 
13. 
Capacity building is a central aspect of the PMAP as it features prominently in the 
Africa Action Plan.  AFR will work on two parallel tracks aimed at both clients and staff.  It 
will undertake an exhaustive review of the role of project implementation units with the view 
to sharply reducing their number in the Region.  In addition, it will undertake a program to 
enhance portfolio monitoring and management from Country Offices.  The number of GG
–
GH level staff from Washington D.C would be increased in Country Offices, and Country 
Managers given more authority and accountability for portfolio management.  A more formal 
program of coaching and mentoring of country office-based Operations Officers and analysts 
with portfolio monitoring responsibilities has been initiated by AFTQK.  A Regional 
Operations Adviser will be located in Tanzania with responsibilities in this area.  Country-
based Operations Officers will also be seconded to AFTQK in Washington D.C for up to six 
months to work with the headquarters-based Operations Advisers. 
 
C
ONCLUSIONS
 
14.   
Given the low levels of performance from which AFR started in FY95, it has made 
remarkable strides over the decade.  But more is required and this is recognized in the Africa 
Action Plan and its attendant Portfolio Management Action Plan.  It is clear that to maintain 
the momentum, to meet international commitments (Paris Declaration and IDA 14), and to 
better support the results on the ground aspirations of our clients
—the African people and 
their governments, AFR will: 
 
·
be
more candid in monitoring and reporting on the portfolio of IDA-assisted 
operations.  This is both about the credibility of the regional staff and 
management, and as well,  the most effective way to identify implementation 
issues and find solutions which will bring results; 
 
·
provide more management attention to portfolio management by specifically 
insisting on and reviewing implementation support plans, and providing 
substantive inputs where necessary, on ISRs and ICRs. Management and staff 
must maintain their focus on potential and actual problem projects, and build 
on the “candor initiative” launched in FY05 within the Region;  
 
·
allocate more resources for implementation support.  The escrow account 
which was piloted in FY05 will be expanded to cover potential problem 
projects as well as problem projects; 
 
·
undertake more and different forms of implementation support including 
project rework and restructuring.  A more robust program of restructuring of 
individual projects and also country portfolios is required.  AFR will utilize 
the simplified processes proposed by OPCS much more systematically and 
proactively;  
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Annual Report on Portfolio Performance FY05                                                                                             72 
    
 
·
explore more liberal use of cancellation, reallocation, and retrofitting to 
achieve results.  The new policy and simplified procedures for Additional 
Financing gives the region an opportunity to address the reluctance of 
borrowers to "losing" IDA credit/grant resources through cancellation. AFR 
will be creative in presenting “packages” to the Board with requests for 
Additional Financing to do more where positive results are evident, with 
restructuring/cancellations where there is failure and little hope of results.  
These "results" packages which will require Board approval, could be 
prepared either by country or by sector;      
 
·
commit to more decentralization and enhancing the roles of Country 
Managers and country office staff in implementation support; 
 
·
support more operations training of teams consisting of bank staff, clients and 
partners in both the technical skills of project design, implementation support, 
M&E including impact assessment, fiduciary processes, and also in client 
engagement skills, strategic communications, partnerships, listening, and 
team effectiveness; and 
 
·
provide incentives to staff to encourage the new ways of doing business 
emphasized in the Action Plan.