32403 v 1 THE WORLD BANK ANNUAL REPORT 2005 YEAR IN REVIEW OPERATIONAL SUMMARY | FISCAL 2005 IBRD MILLONS OF DOLLARS FY05 FY04 FY03 FY02 FY01 Commitments 13,611 11,045 11,231 11,452 10,487 Of which development policy lending 4,264 4,453 4,187 7,384 3,937 Number of projects 118 87 99 96 91 Of which development policy lending 23 18 21 21 15 Gross disbursements 9,722 10,109 11,921 11,256 11,784 Of which development policy lending 3,605 4,348 5,484 4,673 4,393 Principal repayments (including prepayments) 14,809 18,479 19,877 12,025 9,635 Net disbursements (5,087) (8,370) (7,956) (769) 2,149 Loans outstanding 104,401 109,610 116,240 121,589 118,866 Undisbursed loans 33,744 32,128 33,031 36,353 37,934 Operating income 1,320 1,696 3,021 1,924 1,144 Usable capital and reserves 32,072 31,332 30,027 26,901 24,909 Equity-to-loans ratio 31.4% 29.4% 26.6% 22.9% 21.5% IDA MILLONS OF DOLLARS FY05 FY04 FY03 FY02 FY01 Commitments 8,696 9,035 7,282 8,068 6,764 Of which development policy lending 2,301 1,698 1,831 2,443 1,826 Number of projects 160 158 141 133 134 Of which development policy lending 32 23 24 23 15 Gross disbursements 8,950 6,936 7,019 6,612 5,492 Of which development policy lending 2,666 1,685 2,795 2,172 1,280 Principal repayments 1,620 1,398 1,369 1,063 997 Net disbursements 7,330 5,538 5,651 5,549 4,495 Credits outstanding 120,907 115,743 106,877 96,372 86,572 Undisbursed credits 22,330 23,998 22,429 22,510 20,442 Undisbursed grants 3,021 2,358 1,316 148 -- Development grant expenses 2,035 1,697 1,016 154 -- LETTER OF TRANSMITTAL This Annual Report, which covers the period from July 1, has submitted this report, together with the accompanying 2004, to June 30, 2005, has been prepared by the Executive administrative budgets and audited financial statements, to Directors of both the International Bank for Reconstruction the Board of Governors. and Development (IBRD) and the International Development Annual reports for the International Finance Corporation, Association (IDA) in accordance with the respective bylaws the Multilateral Investment Guarantee Agency, and the of the two institutions. Paul Wolfowitz, President of the IBRD International Centre for Settlement of Investment Disputes and IDA, and Chairman of the Board of Executive Directors, are published separately. THE WORLD BANK ANNUAL REPORT 2005 CONTENTS CD-ROM Content Message from the President of the World Bank Year in Review and Chairman of the Board of Executive Directors 2 Organizational Information The Board of Executive Directors 4 Income by Region The World Bank Group 8 New Operations Approved 1 Addressing Worldwide Poverty 11 Lending Data 2 Regional Perspectives 27 Financial Statements Map of World Bank Regions, Country Offices, and Borrower Eligibility 28 Africa 30 East Asia and Pacific 34 South Asia 38 Europe and Central Asia 42 Latin America and the Caribbean 46 Middle East and North Africa 50 3 Summary of Fiscal Year Activities 54 Note:The complete Financial Statements, including Management's Discussion and Analysis, audited financial statements of the International Bank for Reconstruction and Development, and audited financial statements of the International Development Association, are published on the CD-ROM enclosed with this report.This Annual Report is also available on the Internet at www. worldbank.org. All dollar amounts used in this Annual Report are current U.S. dollars unless otherwise specified. THE WORLD BANK ANNUAL REPORT 2005 1 MESSAGE FROM THE PRESIDENT OF THE WORLD BANK AND CHAIRMAN OF THE BOARD OF EXECUTIVE DIRECTORS This Annual Report records the achievements of the World Bank during the last year of the tenure of my distinguished predecessor, Jim Wolfensohn. It is an enormous responsibility to be entrusted with the leadership of this extraordinary institution, and I am grateful to Jim for having done so much to strengthen it over the past decade. While Jim had many accomplishments in the job, probably none is more important than his relentless focus on poverty reduction as a moral issue and as the central mission of the organization. Within this report of the World Bank's activities and financial standing, you will find sections on · Addressing Worldwide Poverty--A description of how the World Bank works to promote sustainable economic growth and channel needed services to poor people.This chapter also details the Bank's work toward achieving the Millennium Development Goals; its institutional and global efforts toward effective development; and its outreach to clients through Public Information Centers and on the Web. · Regional Perspectives--A breakdown of the World Bank's lending and activities across the developing world, featuring highlights of projects in borrowing countries within each of the Bank's six regions. Outgoing President James D.Wolfensohn congratulates President Paul Wolfowitz on his appointment by the Bank's Board of Executive Directors. 2 THE WORLD BANK ANNUAL REPORT 2005 World Bank President Paul Wolfowitz Mr.Wolfowitz meets with young people during his first visit to Africa as World Bank President. · Summary of Fiscal Year Activities--A description of the growing developing countries, the so-called "middle-income" Bank's development knowledge­sharing over the fiscal year; countries that nevertheless still have hundreds of millions of a discussion of the Bank's approach to lending in low- people living in extreme poverty. Finally, as a multilateral income and middle-income countries; the Bank's resources; development institution, the World Bank is uniquely posi- and a summary of the Bank's lending by region, theme, and tioned to help the world address some of the concerns of the sector, such as environmental programs and infrastructure "global commons," such as the development of sustainable projects.This section also describes the Bank's partnerships energy and the alleviation of global health crises. with public, private, and civil society stakeholders. In all of this work, the Bank is blessed with an exception- ally dedicated and qualified professional staff. It is an honor · The fiscal 2005 financial statements, organizational and a privilege to work with them on a daily basis. information, income by region, new operations approved in fiscal 2005, and various lending data are included on a CD inserted inside the back cover of this report. While much has been accomplished by this institution and its development partners, much remains to be done.The G-8 Summit at Gleneagles at the beginning of this new fiscal year has brought a welcome focus on the challenges of global development, particularly in Africa. It has also reaffirmed the central role of the World Bank in so much of that work and Paul Wolfowitz has given us even more to do. As we move forward, we need to keep a balance among the different development priorities.The first priority must be to pay special attention to the needs of the poorest people in the poorest countries in the world. At the same time, the World Bank still has an important role to play with the rapidly THE WORLD BANK ANNUAL REPORT 2005 3 THE BOARD OF EXECUTIVE DIRECTORS The Executive Directors are responsible for the conduct Matters (COGAM); and Personnel.With the committees' help, of the World Bank's general operations, performing their the Board discharges its oversight responsibilities through duties under powers delegated by the Board of Governors. As in-depth examinations of policies and practices, such as the provided in the Articles of Agreement, 5 of the 24 Executive evolution of implementation of the Sarbanes-Oxley corporate Directors are appointed by the member countries having the governance legislation in the United States; budget reform largest number of shares; the rest are elected by the other at the Bank and IFC; the World Bank Group's involvement member countries, which form constituencies in an election in extractive industries; strategic staffing and diversity; and process conducted every two years. strengthening the voice and participation of developing coun- Executive Directors consider and decide on IBRD loan tries and transition economies. COGAM is involved in ongoing and guarantee proposals and IDA credit and guarantee discussions on improving the effectiveness of Board activities. proposals made by the President, and they decide on poli- Executive Directors and Alternate Executive Directors cies that guide the Bank's general operations.They are also periodically visit member countries to review Bank assistance responsible for presenting to the Board of Governors, at the in progress.They meet a wide range of people, including Annual Meetings, an audit of accounts, an administrative project managers, beneficiaries, and government officials, budget, and an annual report (this report) on the Bank's as well as civil society organizations, the business commu- operations and policies as well as other matters that, in their nity, other development partners, financial institutions, and judgment, require submission to the Board of Governors.The resident Bank staff. In July 2004 Directors visited Angola, Board of Executive Directors (the Board) also exercises an South Africa, and Tanzania. In January 2005 they visited important role in shaping Bank policy and its evolution. It is Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka. in this role that the Board represents the evolving perspec- In April 2005 they visited Morocco, Saudi Arabia, and the tives of member countries on the role of the Bank Group as West Bank and Gaza. well as the Bank's operational experience. In this regard, Directors also play an active role in preparing the agenda the Operations Evaluation Department provides independent and issues papers for the semiannual meetings of the joint advice to the Board on the relevance, sustainability, World Bank­International Monetary Fund (Bank-Fund) efficiency, and effectiveness of operations.The department is Development Committee. directly accountable to the Board for performing evaluations, In fiscal 2005 the Development Committee continued as set out in its Board-approved policies, strategies, and to review progress toward achieving the Millennium work program. Development Goals (MDGs) at its discussion of the Global During fiscal 2005 the Executive Directors regularly met Monitoring Report 2005, Millennium Development Goals: at Bank headquarters to carry out their responsibilities, both From Consensus to Momentum.The report included a major in formal Board meetings as the Committee of the Whole focus on Sub-Saharan Africa.The Development Committee and in informal meetings. Directors also serve on one or also reviewed, among others, papers on aid effectiveness and more standing committees: Audit; Budget; Committee on financing modalities; an operational framework for achieving Development Effectiveness; Governance and Administrative debt sustainability; Bank support of the economic growth 4 THE WORLD BANK ANNUAL REPORT 2005 Photo left to right: (standing) Robert B. Holland III, Mr. Herwidayatmo, Pietro Veglio, Eckhard Deutscher, Mathias Sinamenye, John Austin,Tom Scholar, Chander Mohan Vasudev, Thorsteinn Ingolfsson, Sid Ahmed Dib,Yahya Abdullah M. Alyahya, Nuno Mota Pinto, Otaviano Canuto, Pierre Duquesne, Paulo F. Gomes, Gino Alzetta, Gobind Ganga, Alexey G. Kvasov, Luis Marti; (seated) Mahdy Ismail Aljazzaf, Zou Jiayi, Jaime Quijandria,Yoshio Okubo, Ad Melkert agenda, which is based on creating an enabling investment date approaches.The Board continued to closely monitor climate and financing infrastructure; leveraging trade for implementation of the Bank's poverty reduction mandate development; prospects for the global economy; and strength- and its contributions toward the goals.The Board discussed ening the voice and participation of developing countries and papers on the country-owned poverty reduction strategies transition economies in the work and decision making of the outlined in Poverty Reduction Strategy Papers (PRSPs). Bretton Woods institutions. (See "Development Committee Directors considered 8 PRSPs, 2 interim PRSPs, and 20 Communiqués, Fiscal 2005" in Organizational Information on PRSP Progress Reports in fiscal 2005, identifying areas the accompanying CD-ROM.) where further refinement would be useful. Directors also considered a paper that reviews the effectiveness of Poverty STRATEGIC ISSUES Reduction Strategy Credits, the Bank lending instrument The major areas of Board emphasis during fiscal 2005 are that supports poverty reduction objectives. highlighted below. Debt and Debt Sustainability Strategic Framework The Board discussed the choice of indicative debt burden The Board's work remained closely aligned with the twin thresholds to be used in a framework for analyzing debt pillars of the Bank's strategic framework--promoting a sustainability in low-income countries, the interaction of favorable investment climate and empowering poor people. the framework with the Heavily Indebted Poor Countries The continued relevance of these priorities, confirmed over Initiative, and the modalities for joint debt sustainability the years by a series of medium-term strategy papers, was analyses by Bank and Fund staff. underscored this year by the Executive Directors. Directors stressed the need for the Bank to intensify its efforts in Country Programs implementing the framework by sharpening the tools and Building on PRSPs for low-income countries and national procedures for meeting the development challenges set forth development strategies for middle-income countries, Country in the Millennium Development Goals. Directors reviewed a Assistance Strategies (CASs) and Country Partnership number of progress reports on ongoing efforts at harmonizing Strategies capture the essential elements of the Bank's operational policies, procedures, and practices among donors; partnerships with member countries.These strategies are on meeting the needs of low-income countries, including the cornerstone of Bank Group work at the country level. heavily indebted poor countries and low-income countries During this fiscal year Directors continued to recommend under stress; and on strengthening partnerships with middle- that CASs include more detailed frameworks for measuring income countries. results, including intermediate indicators to measure and monitor progress toward medium-term outcomes agreed on Poverty Reduction by the country, the Bank, and other development partners. The challenge of meeting the Millennium Development Goals Directors emphasized the need for CASs to be more focused is becoming more and more pressing as the 2015 target and selective and to build on partnerships.They highlighted THE WORLD BANK ANNUAL REPORT 2005 5 the importance of linking harmonization and alignment ADMINISTRATIVE BUDGET efforts to the results agenda.They also identified the need for The total administrative expenses for fiscal 2005 were the Bank to complement country programs with regional and $2,011.3 million, net of reimbursements, and included subregional approaches.The Board reviewed 36 CASs, 10 of $172.7 million for the Development Grant Facility.The net which are results-based, during the fiscal year. It continued administrative expenses of $1,502.2 million represented a 2 to monitor the evolving Bank response to the Asian tsunami percent real increase over the fiscal 2004 budget (a 5 percent disaster and to the Interim Program in Iraq. nominal increase). In June 2005 the Executive Directors approved a total administrative budget, net of reimburse- SECONDMENT PROGRAM ments, of $2,102.8 million for fiscal 2006. To enhance the voice and participation of developing and transition countries in decision making at the Bank and INSPECTION PANEL the Fund, the Executive Directors of the Bank identified a In fiscal 2005 the Inspection Panel received three new number of capacity-building measures, including the creation Requests for Inspection involving Bank projects in Pakistan of a five-year secondment program for Bank officials from (National Drainage Program Project), Burundi (Public Works those countries. and Employment Creation Project), and Cambodia (Forest Sixteen secondees have been given six-month assignments Concession Management and Control Pilot Project).Thirty- in operational units at the Bank, with the objective of achiev- six Requests for Inspection have been filed since the panel ing better communication and knowledge sharing between was established: 11 from Africa, 11 from Latin America and Executive Directors and their constituencies, with particular the Caribbean, 10 from South Asia, and 4 from East Asia attention to Bank procedures, products, and operations. and Pacific. Of the 36 formal requests received, the Panel has recommended investigations in 18 cases, 6 under the OVERSIGHT AND FIDUCIARY RESPONSIBILITY rules that applied before the April 1999 clarifications to The Board exercises oversight and fiduciary responsibil- the resolution that established the panel, and 12 since those ity on behalf of its shareholders, in part through its Audit clarifications were adopted. As of May 2005, the panel was Committee.The committee revised its terms of reference conducting 4 investigations. in 2003 to reflect best practices and continues to remain Requests for Inspection, Management Responses, panel abreast of evolving standards of corporate oversight, gover- recommendations, panel investigation reports, and manage- nance, and control issues.The committee advises the Board ment recommendations for projects reviewed this fiscal year on financial management and other governance matters to can be found at www.worldbank.org/inspectionpanel. facilitate Board decisions on financial policy and control issues. In particular, the Internal Audit Department and the SELECTION OF A NEW PRESIDENT Department of Institutional Integrity have begun briefing the On March 31, 2005, the Executive Directors unanimously committee in restricted executive sessions on risk and control selected Paul Wolfowitz to become the Bank's tenth president, issues within their respective purviews. effective June 1, 2005. 6 THE WORLD BANK ANNUAL REPORT 2005 EXECUTIVE DIRECTORS,ALTERNATES,AND COMMITTEE MEMBERSHIP | JUNE 30, 2005 EXECUTIVE DIRECTOR ALTERNATE CASTING VOTES OF APPOINTED (vacant) Robert B. Holland, III United States Yoshio Okuboc, d, g Toshio Oya Japan Eckhard Deutschere (C) Walter Hermannh Germany Tom Scholarb (VC) Caroline Sergeant United Kingdom Pierre Duquesnea (C) Anthony Requin France ELECTED Gino Alzettaa, d (VC) Melih Nemli Austria, Belarus,* Belgium, Czech Republic, Hungary, Kazakhstan, Luxembourg, (Belgium) (Turkey) Slovak Republic, Slovenia,Turkey Luis Martia, d Jorge Familiarh Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain, (Spain) (Mexico) Venezuela (República Bolivariana de)* Ad Melkertc, e, i (C) Tamara Solyanykh Armenia, Bosnia and Herzegovina, Bulgaria,* Croatia, Cyprus, Georgia, Israel, (Netherlands) (Ukraine) Macedonia (former Yugoslav Republic of), Moldova, Netherlands, Romania,* Ukraine Marcel Massed, e Gobind Gangah Antigua and Barbuda,* The Bahamas,* Barbados, Belize, Canada, Dominica, Grenada, (Canada) (Guyana) Guyana, Ireland, Jamaica,* St. Kitts and Nevis, St. Lucia, St.Vincent and the Grenadines Otaviano Canutoa (VC), b, i Jeremias N. Paul, Jr. Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Philippines, Suriname,* (Brazil) (Philippines) Trinidad and Tobago Biagio Bossonea, b Nuno Mota Pinto Albania, Greece, Italy, Malta,* Portugal, San Marino,* Timor-Leste (Italy) (Portugal) John Austinb, e, i Terry O'Brienh(C) Australia, Cambodia, Kiribati, Korea (Republic of), Marshall Islands, Micronesia (New Zealand) (Australia) (Federated States of), Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Solomon Islands,Vanuatu Mathias Sinamenyec, d Mulu Ketsela Angola, Botswana, Burundi, Eritrea, Ethiopia,The Gambia, Kenya, Lesotho, Liberia, Malawi, (Burundi) (Ethiopia) Mozambique, Namibia,* Nigeria, Seychelles,* Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe Chander Mohan Vasudevc (C) Akbar Ali Khanh Bangladesh, Bhutan, India, Sri Lanka (India) (Bangladesh) Thorsteinn Ingolfssonb, e Svein Aassh Denmark, Estonia,* Finland, Iceland, Latvia, Lithuania,* Norway, Sweden (Iceland) (Norway) Sid Ahmed Dibc, e Shuja Shah Afghanistan, Algeria, Ghana, Iran (Islamic Republic of), Morocco, Pakistan,Tunisia (Algeria) (Pakistan) Pietro Veglioc (VC), d Jakub Karnowski Azerbaijan, Kyrgyz Republic, Poland, Serbia and Montenegro, Switzerland,Tajikistan, (Switzerland) (Poland) Turkmenistan,* Uzbekistan Mahdy Ismail Aljazzafb (C), g Mohamed Kamel Amr Bahrain,* Egypt (Arab Republic of), Iraq, Jordan, Kuwait, Lebanon, Libya, Maldives, Oman, (Kuwait) (Arab Republic of Egypt) Qatar,* Syrian Arab Republic, United Arab Emirates,Yemen (Republic of) Zou Jiayia, b Yang Jinlinh China (China) (China) Yahya Abdullah M. Alyahya Abdulrahman M. Almofadhi Saudi Arabia (Saudi Arabia) (Saudi Arabia) Alexey G. Kvasovd (C) Eugene Miagkovh Russian Federation (Russian Federation) (Russian Federation) Herwidayatmoa, e Nursiah Arshadh Brunei Darussalam,* Fiji, Indonesia, Lao People's Democratic Republic, Malaysia, (Indonesia) (Malaysia) Myanmar, Nepal, Singapore,Thailand,Tonga,Vietnam Jaime Quijandriac, d Alieto Guadagni Argentina, Bolivia, Chile, Paraguay, Peru, Uruguay* (Peru) (Argentina) Paulo F. Gomesb, e (VC), f Louis Philippe Ong Sengh Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, (Guinea-Bissau) (Mauritius) Congo (Democratic Republic of), Congo (Republic of), Côte d'Ivoire, Djibouti, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, Sa~ oTomé and Principe, Senegal,Togo *Member of IBRD only. Committees a.Audit Committee f. Pension Benefits Administration Committee C = Chairman b. Budget Committee g. Pension Finance VC = Vice-Chairman c. Committee on Development Effectiveness (CODE) h. CODE Subcommittee (formed 1/12/05) d. Personnel Committee i. Ethics Committee e. Committee on Governance and Executive Directors' Administrative Matters THE WORLD BANK ANNUAL REPORT 2005 7 THE WORLD BANK GROUP The World Bank Group today comprises five closely associated institutions that collaborate to support development projects worldwide. Examples of Bank Group cooperation include joint Country Assistance Strategies; investment promotion initiatives; the Foreign Investment Advisory Service; guarantee programs for major infrastructure projects; collaboration on private sector development activities; joint programs for developing micro, small, and medium enterprises; and HIV/AIDS awareness and prevention. (See www.ifc.org, www.miga.org, and www.worldbank.org/icsid for annual reports of the other members of the World Bank Group.) THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT IBRD aims to reduce poverty in middle- fund development activities and to ensure Established 1945 | 184 Members income and creditworthy poorer countries its financial strength, which enables it to Cumulative lending: $407.4 billion by promoting sustainable development borrow in capital markets at low cost and Fiscal 2005 lending: $13.6 billion through loans, guarantees, risk management offer clients good borrowing terms. IBRD's for 118 new operations in 37 countries products, and (nonlending) analytical and 24-member Board is made up of 5 appointed advisory services.The income that IBRD has and 19 elected Executive Directors who generated over the years has allowed it to represent its 184 member countries. IBRD KEY FINANCIAL INDICATORS | FISCAL 2001­2005 MILLIONS OF DOLLARS 2001 2002 2003 2004 2005 Operating income 1,144 1,924 3,021 1,696 1,320 Loans outstanding 118,866 121,589 116,240 109,610 104,401 Total assets 222,748 227,454 230,062 228,910 222,008 Total equity 29,570 32,313 37,918 35,463 38,588 THE INTERNATIONAL DEVELOPMENT ASSOCIATION Contributions to IDA enable the World Bank great majority of people live on less than $2 to provide approximately $8 billion to $9 a day. IDA's resources help support country- Established 1960 | 165 Members billion a year in highly concessional financing led poverty reduction strategies in key Cumulative commitments: $161 billion* to the world's 81 poorest countries (home to policy areas, including raising productivity, Fiscal 2005 commitments: $8.7 billion for 160 new operations in 66 countries 2.6 billion people). IDA's interest-free credits providing accountable governance, building and grants are vital because these countries a healthy private investment climate, and *Includes credits, grants, and guarantees. have little or no capacity to borrow on improving access to education and health market terms. In most of these countries, the care for poor people. IDA KEY FINANCIAL INDICATORS | FISCAL 2001­2005 MILLIONS OF DOLLARS 2001 2002 2003 2004 2005 Operating income (loss) 866 692 108 (1,684) (986) Development credits outstanding 86,572 96,372 106,877 115,743 120,907 Total sources of development resources 101,134 109,495 119,454 127,930 130,378 8 THE WORLD BANK ANNUAL REPORT 2005 THE INTERNATIONAL FINANCE CORPORATION IFC promotes economic development through IFC seeks to reach businesses in regions and Established 1956 | 178 Members the private sector.Working with business countries that have limited access to capital. Committed portfolio: $24.6 billion partners, it invests in sustainable private It provides finance in markets deemed too (includes $5.3 billion in syndicated loans) enterprises in developing countries without risky by commercial investors in the absence Fiscal 2005 commitments: $5.4 billion accepting government guarantees. It provides of IFC participation and adds value to the for 236 projects in 67 countries equity, long-term loans, structured finance projects it finances through its corporate and risk management products, and technical governance, environmental, and social assistance and advisory services to its clients. expertise. IFC KEY FINANCIAL INDICATORS | FISCAL 2001­2005 MILLIONS OF DOLLARS (unless otherwise indicated) 2001 2002 2003 2004 2005 Operating incomea 241 161 528 982 1,953 Net income 345 215 487 993 2,015 Liquid assets, net of associated derivatives 13,258 14,532 12,952 13,055 13,325 Loan and equity investments, net 8,696 7,963 9,377 10,279 11,489 Borrowings withdrawn and outstanding 15,457 16,581 17,315 16,254 15,359 Total capital 6,095 6,304 6,789 7,782 9,798 Return on average assets (%) 0.6 0.6 1.8 3.1 5.4 Return on average net worth (%) 4.1 2.7 8.2 13.7 22.6 Cash and liquid investments as a percentage of next 3 years' estimated net cash requirements (%) 101 109 107 116 142 Debt-to-equity ratio 2.6:1 2.8:1 2.6:1 2.3:1 1.8:1 Capital adequacy ratio (%) 48 49 45 48 50 Total reserve against losses on loans to total disbursed loan portfolio (%) 16.0 21.9 18.2 14.0 9.9 a. For 2005, income after expenditures for technical assistance and advisory services. Note: For more information, please consult the IFC (www.ifc.org), MIGA (www.miga.org), and ICSID annual reports. THE WORLD BANK ANNUAL REPORT 2005 9 THE MULTILATERAL INVESTMENT GUARANTEE AGENCY Concerns about investment environments and civil disturbance. MIGA also provides and perceptions of political risk often inhibit advisory services to help countries attract Established 1988 | 165 Members foreign direct investment--a key driver of and retain foreign investment, mediates Cumulative guarantees issued: $14.7 billion* economic growth--in developing countries. investment disputes to keep current invest- Fiscal 2005 guarantees issued: $1.2 billion MIGA addresses these concerns by providing ments intact and remove possible obstacles *Amounts include funds leveraged through the Cooperative political risk insurance (guarantees), offer- to future investment, and disseminates Underwriting Program. ing investors protection against noncom- information on investment opportunities to mercial risks such as expropriation, currency the international business community. inconvertibility, breach of contract, war, MIGA KEY FINANCIAL INDICATORS | FISCAL 2001­2005 MILLIONS OF DOLLARS (unless otherwise indicated) 2001 2002 2003 2004 2005 Operating income 49.3 48.4 38.1 25.6 24.1 Operating capitala 653 702 766 811 830 Operating income/operating capital (%) 7.5 6.9 5.0 3.2 2.9 Net exposure 3,157 3,202 3,204 3,259 3,138 Operating capital/net exposure (%) 20.7 21.9 23.9 24.9 26.4 Five largest exposuresb 1,002 1,006 912 923 834 Five largest exposures/net exposure (%) 31.7 31.4 28.5 28.3 26.6 Net exposure in IDA-eligible countries 934 1,113 1,255 1,139 1,341 Net exposure in IDA/net exposure (%) 29.6 34.8 39.2 34.9 42.7 a. Shareholders' equity plus net insurance portfolio reserves. b. Aggregate of five largest country net exposures. THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES ICSID helps encourage foreign investment agreements concerning investment refer to by providing international facilities for ICSID's arbitration facilities. ICSID also Established 1966 | 142 Members conciliation and arbitration of investment conducts research and publishing activities Total cases registered: 184 disputes, thereby helping foster an atmo- in the areas of arbitration law and foreign Fiscal 2005 cases registered: 25 sphere of mutual confidence between states investment law. and foreign investors. Many international WORLD BANK GROUP COOPERATION IN EXTRACTIVE INDUSTRIES In response to the independent 2004 Extractive Industries Review, Advisory Group, which will draw on the experience of outstanding the World Bank, IFC, and MIGA have begun implementing propos- representatives from a range of stakeholder groups to provide advice als endorsed by the Board of Directors.These programs are aimed and a forum for discussing key issues in these industries. As part of at improving the governance, community involvement, and revenue an overall commitment to sustainability, the Bank Group will also management of oil, gas, and mining projects supported by the Bank increase its investments in natural gas and renewable energies, as Group.The organizations are now setting up an Extractive Industries well as in projects that improve energy efficiency. Note: For more information, please consult the IFC (www.ifc.org), MIGA (www.miga.org), and ICSID annual reports. 10 THE WORLD BANK ANNUAL REPORT 2005 1 ADDRESSING WORLDWIDE POVERTY A VISION FOR DEVELOPMENT and sustainable growth and on investing in poor people The World Bank's mission is to work for a world free of and empowering them to participate in development. poverty.This year, as world leaders and development partners The strategy recognizes the vital relationship between have taken stock of progress toward achieving their vision for long-term growth and human development: without human development, they have seen that without bold actions, the development, economic growth cannot be sustained; and a Millennium Development Goals (MDGs) they adopted at the healthy economic climate provides a setting in which people turn of the century will not be reached.To focus global atten- can thrive. tion on the world's poor people, they have proclaimed 2005 the year of development. BUILDING THE CLIMATE FOR INVESTMENT, JOBS,AND There is a growing realization that lack of sufficient SUSTAINABLE GROWTH progress toward these goals has immediate and tragic conse- Growth is an essential and powerful instrument for reduc- quences. Every week 10,000 women in the developing world ing poverty and improving living standards. If developing die giving birth, and 200,000 children under age five die of countries are to meet the MDGs, economic growth in these disease. More than 8,000 people die every day from AIDS- countries must accelerate. related conditions, and 2 million people will die of AIDS this Strong growth requires an economic climate that is year in Africa alone. As many as 115 million children conducive to investment, job creation, and higher productivity. in developing countries are not in school. To foster a climate for equitable growth, the Bank conducts For hundreds of millions of people, a future without economic analysis and provides country lending and policy poverty, disease, and illiteracy depends on development. advisory assistance for a variety of programs (see chapter 3). For the world, long-term security and peace depend upon it. These programs aim to help maintain economic and financial Stepped-up action toward meeting the MDGs is thus stability, improve investment climates and enable private necessary.The urgency of this need is highlighted in the sector development, facilitate better governance and effective second Global Monitoring Report, which assesses progress efforts to combat corruption, develop and maintain infra- and proposes ways to build momentum toward achieving the structure, support environmental sustainability, and promote goals (see page 23).The Bank is a central partner in the openness to trade and access to world markets for goods. effort--through its knowledge, its lending, and its support for country-owned poverty reduction strategies. Improving the Investment Climate and Enabling Private The Bank has sharpened its support for the development Sector Development agenda through a two-pillar strategy for reducing poverty The Bank's analytic work on investment climates provides that is based on building the climate for investment, jobs, countries with valuable information and tools. Now in its 12 THE WORLD BANK ANNUAL REPORT 2005 second year, the Doing Business project, which is supporting development components in fiscal 2005 amount to more than reform work in more than 30 countries, provides objective, $3.8 billion.With 23 country investment climate assessments quantifiable indicators of business regulation in 145 completed this year, country assessments are now being countries. It provides tools for benchmarking that enable used to guide reforms or support Bank projects in over 40 governments to compare their investment climates to those countries. For example, in El Salvador the investment climate of their neighbors and their performance to global best prac- assessment helped shape the Bank's Growth Development tices.This year's report, Doing Business in 2005, expands the Policy Loan by identifying challenges in the investment indicators of business constraints to include property registra- climate and infrastructure. In Cambodia the Bank-IFC tion and investor protection.The report also helps identify Foreign Investment Advisory Service is working with the reform priorities. garment industry to create a socially responsible brand image The new Investment Climate Surveys Database, with data that will help it compete globally. from 30,000 firms in 58 countries, offers additional indicators to inform governments contemplating reforms.This year the Facilitating Good Governance and Combating Corruption Bank and IFC completed an analysis of corporate governance Research shows that open and transparent governments are in 10 countries, bringing the number of analyses to 48. Drawing more likely to generate economic growth. For this reason, on this research, the Bank's World Development Report 2005: the Bank now requires all Country Assistance Strategies to A Better Investment Climate for Everyone has elevated the address governance (see chapter 3). importance of improving the investment climate within the In fiscal 2005 Bank lending for governance totaled $2.6 development agenda. billion, 12 percent of new lending (see chapter 3).This lending The Bank Group's advisory services and lending are supports reforms in public financial management, procurement, turning diagnostic work into action in many countries. service delivery, tax policy, customs administration, and law and Commitments for 109 new projects with private sector justice. (See www1.worldbank.org/publicsector/index.cfm.) THE MILLENNIUM DEVELOPMENT GOALS · Eradicate extreme poverty and hunger · Improve maternal health Halve the proportion of people in extreme poverty, and the Reduce by three-quarters the maternal mortality rate by 2015 proportion of people who suffer from hunger, by 2015 · Combat HIV/AIDS, malaria, and other diseases Halt the spread of HIV/AIDS, malaria, and other major diseases, · Achieve universal primary education and begin to reverse the spread, by 2015 Ensure by 2015 that all children will be able to complete a full course of primary schooling · Ensure environmental sustainability Halve the proportion of people without sustainable access to safe · Promote gender equality and empower women drinking water by 2015 Eliminate gender disparity in primary and secondary education by 2005, and in all levels of education by 2015 · Develop a global partnership for development Develop further an open, rule-based, predictable, nondiscrimina- · Reduce child mortality tory trading and financial system, and address the special needs Reduce by two-thirds the under-five mortality rate by 2015 of the least developed countries ADDRESSING WORLDWIDE POVERTY 13 Integrity of Financial Systems The Bank's program to Institutional Integrity The Bank is a leader among interna- fight money laundering and the financing of terrorism tional institutions in resources committed to fighting fraud focuses on helping countries strengthen the integrity of and corruption in its own operations and in client countries. their financial systems.The Bank works with the intergovern- The Department of Institutional Integrity was created in mental Financial Action Task Force, similar regional bodies, 2001 to investigate allegations of fraud and corruption within and the United Nations to promote policies that encourage the Bank and in Bank-funded projects.The Bank issued its transparency in financial sectors and help detect and first Annual Report on Investigations and Sanctions of Staff prosecute corruption. In fiscal 2005 the Bank more than Misconduct and Fraud and Corruption in Bank-Financed doubled its assistance in this area, providing training programs and long-term expert mentors for regulators, organizing global dialogues with the public and private sectors, conducting assessments of country compliance with international best practices, and publishing reference guides and practical manuals. Capacity Building and Diagnostics The World Bank Institute (WBI) helps policy makers from client countries develop the knowledge, skills, and abilities that will enable them to improve governance and stem corruption. In cooperation with the Bank's lending program and partner institutions, the Institute delivers participatory learning programs that help local government leaders formulate specific institutional reforms. In fiscal 2005 WBI helped civil society organizations from Benin, Guatemala, Guinea, Sierra Leone, and Zambia to develop governance and anticorruption assessments. WBI and the Bank's Development Economics Group produce the Worldwide Governance Indicators, which assess more than 200 countries and territories on key dimensions of governance.These indicators are widely used by policy makers, donor agencies, and social science researchers. (See "Capacity Development" in chapter 3.) (See www .worldbank.org/wbi/governance.) Law and Justice Courts and other justice institutions are vital to good governance and the fight against corruption, as they enforce the rules governing economic and social interac- tion. Since 1991 the Bank has funded more than 1,500 law and justice activities in 140 countries.These include 17 freestanding justice projects that were active in fiscal 2005. 14 THE WORLD BANK ANNUAL REPORT 2005 Projects in February 2005.The report provides detailed data (investigations_hotline@worldbank.org), and through Bank for fiscal 2004 and summary data for fiscal 1999­2004. staff and other sources. Since 1999 the department has investigated and closed more than 2,000 cases. As of the end of fiscal 2005, these inves- Revitalizing Infrastructure tigations had led to the debarment of more than 300 firms The World Bank supports activities in a wide array of infra- and individuals.The Bank publishes all of its debarments at structure services, including energy, transport, water supply www.worldbank.org/procurement. Allegations can be received and sanitation, urban services, telecommunications, oil, gas, at the Bank's 24-hour hotline (1-800-831-0463), by e-mail and mining. It helps clients improve infrastructure service delivery through policy dialogue and institution building, support for reform, and physical investment. It also acts as a catalyst for leveraging financial and other assistance from development partners and the private sector. Significant progress was made in fiscal 2005 toward implementing the Infrastructure Action Plan, which commits the Bank to enhancing its support by providing country analytic work in response to client demand for infrastructure strengthening, and by refining its lending instruments and advisory approaches. Infrastructure lending grew from $5.4 billion in fiscal 2003 to $6.5 billion--about a third of total lending commitments­­in fiscal 2004, to $7.3 billion in fiscal 2005--remaining at a third of total lending. The Board approved 77 infrastructure projects in fiscal 2005, a 7 percent increase over the number of commitments in fiscal 2004.Transportation projects received the largest share of commitments, at almost 43 percent, followed by energy and mining, water supply and sanitation, and information and communication technologies. The Bank delivered 188 regionally managed economic and sector work or analytic infrastructure products in fiscal 2005. Significant changes have been made in the way this work is done, with greater emphasis on the linkages between infra- structure and other sectors. Examples include work in Colombia and Indonesia as well as a flagship infrastructure study on East Asia carried out jointly with the Asian Develop- ment Bank and the Japan Bank for International Cooperation. Similar analytic work is envisaged for Africa, Europe and Central Asia, and Latin America and the Caribbean. The Bank is making substantial investments in new areas. Together with IFC, it is exploring opportunities for engaging with clients more effectively at the subnational level through ADDRESSING WORLDWIDE POVERTY 15 the Municipal Fund Joint Pilot Program. It is also partnering development, forests, water resources, the environment, with the International Monetary Fund (IMF) to find ways and social development.This set of strategies takes an to address the lack of adequate fiscal resources for infra- integrated approach to growth based on social and environ- structure investment once ongoing expenditure commitments mental responsibility. It also focuses resources on conflict- in country budgets are met.The Bank and IFC are offering affected countries. guidance to staff and clients on the role of the private and public sectors in providing infrastructure services and are Agriculture and Rural Development Seventy percent of the fine-tuning approaches to public-private partnerships.The world's poor live in rural areas.The Bank's renewed focus on Bank is also continuing to pilot output-based aid approaches, rural development is therefore timely, and is reflected in Bank in which governments delegate service delivery to third parties lending of $2.8 billion in fiscal 2005. under contracts that tie disbursement of public funding to the outputs and services actually delivered to target groups. The Bank remains committed to having a significant impact in client countries by scaling up infrastructure activities and will continue to engage other development partners, including the private sector, in this work. Tackling Risks and Uncertainties Affecting Developing Countries Poor countries face risks and vulnerabilities that stand in the way of sustainable development.Water insecurity, commodity price volatility, extreme weather variability, and natural disasters affect growth prospects. Ecological risks--caused by climate change, biodiversity loss, depletion of fisheries stock, and unsustainable practices such as illegal logging--threaten the availability of natural resources for productive purposes and wealth creation. Social imbalances, weak institutions, and political instability lead to conflicts, which deter development efforts. The Bank is addressing these issues with a suite of interrelated sector strategies on agriculture and rural 16 THE WORLD BANK ANNUAL REPORT 2005 Social Development During fiscal 2005 the Bank's Board Consultative Group on International Agricultural Research. of Executive Directors discussed "Empowering People The World Bank­World Wildlife Fund Alliance for Forest by Transforming Institutions: A Social Development Conservation and Sustainable Use renewed its commitment Implementation Plan for the World Bank."This action plan to slowing the depletion of the world's forests by committing focuses on the core values of inclusion, cohesion, and social to phase two of the partnership, which sets new targets for accountability. (See "Sector Strategies" in chapter 3.) reducing forest depletion.The Global Program on Fish will seek to improve sustainable livelihoods in the fisheries sector Environment Investment in environmental and natural and in rural coastal communities in response to the current resource management projects was $2.5 billion in fiscal 2005, crisis in capture fisheries. Public-private partnerships for representing 11 percent of Bank lending.This year's Global carbon finance surpassed $800 million, representing a major Development Marketplace also focused on finding solutions effort to generate a stable global market for carbon emissions for a sustainable environment. (See box 1.1.) trading.Through the Critical Ecosystem Partnership Fund, the Bank, together with Conservation International, the Global Multidisciplinary Approaches To take full advantage of Environment Facility, the government of Japan, and the John synergies on cross-sectoral issues, the Bank has formed natural D. and Catherine T. MacArthur Foundation, is conserving resource management teams to ensure that land, fisheries, the Earth's biodiversity hotspots. It is supporting the work biodiversity, and forests projects are managed collaboratively. of the Com+ Alliance of Communicators for Sustainable Implementation of the Water Resources Strategy, work on agri- Development, a global communications platform aimed at cultural commodities and international trade, and work with bringing sustainable development closer to the people. (See TerrAfrica, a regional partnership that promotes sustainable www.cgiar.org, www.thegef.org, www.worldbank.org, and land management in Africa, also involve such collaboration. www.complusalliance.org.) Global Partnerships The Bank advances its sustainable Conflict-Affected Countries and Fragile States More than development agenda through key global partnerships, includ- one-third of the Bank's borrowers are affected by conflict. ing partnerships with the Global Environment Facility and the Poor countries suffer disproportionately from civil war: a BOX 1.1 2005 GLOBAL DEVELOPMENT MARKETPLACE Seventy-eight finalists from 42 countries showcased innovative The award pool is cofinanced by the World Bank Group, the Global approaches to improving the lives of poor people while promoting Environment Facility, the John D. and Catherine T. MacArthur environmental conservation at the Global Development Foundation, and Conservation International, among others. Marketplace competition in Washington, DC, in May.Titled Innovations for Livelihoods in a Sustainable Environment, this The Development Marketplace identifies and supports local ideas year's call for proposals attracted more than 2,600 entries from that deliver results. In addition to the global event, nine country- 136 countries in the areas of renewable energy, biodiversity level Development Marketplaces were held in 2005, covering a conservation, sustainable agriculture, and mitigation of air and total of 14 countries.These country-led programs reach out to truly water pollution.Thirty-one finalists received funding of up to grassroots projects and focus on key local development themes. $150,000 each from an award pool of nearly $4 million. (See www.developmentmarketplace.org.) ADDRESSING WORLDWIDE POVERTY 17 The Bank is helping communities to rebuild after the devastating tsunami of December 2004. country whose annual per capita gross domestic product recovery programs to ensure that they will benefit poor people, (GDP) is $250 has an average 15 percent risk of civil war in and efficient coordination among members of the donor the next five years, whereas a country whose per capita GDP community. (See www.worldbank.org/tsunami.) is $5,000 has less than a 1 percent risk. A typical civil war Disaster reduction is at the core of the Bank's mission of lasts seven years and causes an estimated 30 percent increase fighting poverty. Since its establishment, the Bank has been in poverty and a 13 percent increase in infant mortality. a leader in providing postdisaster reconstruction assistance. The Bank increasingly uses tools related to conflict Its expertise in recovery and reconstruction and its efforts to sensitivity in its operational work, with 15 countries using promote more effective disaster risk management allowed it to conflict analysis frameworks and completing postconflict respond to the tsunami in a strategic and comprehensive way. needs assessments and recovery plans. IDA had committed Since 1998 the Bank has provided training and technical more than $3 billion in exceptional postconflict assistance assistance on integrating disaster risk reduction into devel- by fiscal 2005. Since 1998 the Post-Conflict Fund has also opment programs. Bank staff and representatives of client approved $71.2 million for 142 grants in 38 countries and countries are trained in disaster-related topics, drawing on territories. Most of these grants are implemented by civil case studies to promote sustainable recovery processes and society organizations and United Nations agencies. Forty-two reduce the vulnerability of communities to future disasters. percent of all such funds have gone to Africa.The poorest (See www.worldbank.org/hazards.) conflict-affected countries are also supported through the There is a growing recognition that disaster-prone coun- Low-Income Countries under Stress Initiative. (See chapter 3 tries need to develop a more proactive approach to disaster and www.worldbank.org/licus.) risk management.That was highlighted in this year's Bank publication, Natural Disaster Hotspots. The approach includes Responding to Disasters reducing risk before disasters hit and strengthening prepared- The tsunami in the Indian Ocean on December 26, 2004, ness and response capacities to enable full and effective had a devastating--and disproportionate--effect on poor utilization of resources after a catastrophe. In most cases, people.The Bank responded quickly, assisting with recovery humanitarian aid and reconstruction assistance are not suffi- planning, helping coordinate rehabilitation and recovery cient for full recovery from disaster events. Often, absorptive support requested by national authorities, and mobilizing capacity is very weak, and only a fraction of committed funds financial support. are disbursed, even years after the disaster. Within days the Bank had teams in India, Indonesia, the To address these problems, the Bank has been promoting a Maldives, and Sri Lanka, the four most severely affected comprehensive risk management framework.This framework countries. Staff in Bank country offices worked side by side includes developing a better understanding of the risks facing with government counterparts and other partners, notably the a country and the scale of potential losses, taking steps to Asian Development Bank, to assess the extent of the damage mitigate the potential effects of disasters, and examining the and loss and to develop recovery strategies. In the Maldives potential to use existing lending products more creatively to the Bank quickly established a country presence. In the support ex ante recovery financing mechanisms. Seychelles and Somalia, where the Bank does not have active programs, Bank staff in the region provided assistance to the Fostering International Trade lead support agencies and identified financing options outside The Bank seeks to promote a world trading system that is the Bank.Three principles guided Bank support for tsunami more conducive to economic development, and to help devel- recovery: government leadership of the recovery efforts, oping countries capture the benefits of global trade. In fiscal community involvement in assessing needs and designing 2005 it advocated for World Trade Organization members to 18 THE WORLD BANK ANNUAL REPORT 2005 achieve as ambitious an outcome as possible in the current tion, but only if developing countries liberalize trade unilater- Doha Round of trade negotiations. It emphasized the impor- ally, multilaterally, and regionally. Other key trade research tance of a successful round of talks to the health of the world publications include Global Agricultural Trade and Developing economy and the fight against poverty. Countries and the Customs Modernization Handbook. In The Bank works at both the multilateral and country the past two years, the Bank has launched studies on how levels to support clients in their trade integration strategies to improve trade policies and develop trade opportunities in and to help them manage the transition to the environment more than 50 countries as well as some 15 regional studies. that would emerge from a successful Doha Round.This work (See www.worldbank.org/trade.) focuses on three areas: supporting investment and techni- cal assistance projects to help countries identify the gains INVESTING IN POOR PEOPLE AND EMPOWERING THEM TO from trade facilitation reforms; making resources available PARTICIPATE IN DEVELOPMENT to support trade policy reforms; and generating the analysis Investments in education, health, and gender equality are needed to anticipate, measure, and ameliorate the special critical to attaining the Millennium Development Goals.These adjustment costs countries could face as a result of multilat- investments help empower people to participate in decisions eral trade liberalization. about development projects that affect their lives and the In fiscal 2005 the Bank approved 15 new projects with lives of their families.Working with civil society organiza- trade facilitation components, for a total of $381 million. tions can also help empower people to have an impact on the These projects focus on infrastructure, services, financial local delivery of education and health services.The Bank is systems, and other sectors of the economy essential to advanc- the world leader in investing in people's empowerment. (See ing trade and development.The Bank also helped several www.developmentgoals.org.) countries prepare for accession to the World Trade Organization.The World Bank Institute promoted 60 trade- Focusing on Children and Youth related learning events. Nearly half the people of the world today are under 25 years The Bank published several important reports on trade old. Ninety percent of these young people live in developing in fiscal 2005. Global Economic Prospects 2005:Trade, countries.The Bank is the world's largest lender for educa- Regionalism, and Development concludes that regional trade tion and health, the two sectors most directly related to the agreements can improve prospects for rapid poverty reduc- well-being of children and youth.The Bank has contributed ADDRESSING WORLDWIDE POVERTY 19 significantly to addressing the issues of poverty, HIV/AIDS, in support of pre-primary and primary education and $294 nutrition, social protection, and social development, all of million in support of pre-primary, secondary, and tertiary which affect the lives of young people. In September 2004 education.This funding helped, for example, to expand the Bank held the second Youth, Development, and Peace coverage of early childhood education in the Arab Republic of conference in Sarajevo, co-organized with the European Youth Egypt, particularly for poor families and girls; to strengthen Forum and the World Organization of the Scout Movement, rural education in the Kyrgyz Republic; and to improve the which together represent more than 20 million young people quality of basic education and access by poor and disadvan- and 28 million scouts. Participants gathered to discuss how taged children in Nepal. to better collaborate on issues important to young people, Globally, the Fast-Track Initiative (FTI) is the key instru- and agreed to establish an informal network of dialogue and ment for donor cooperation and support for Education for regular interaction. All. As of June 30, 2005, more than $900 million in official development assistance had been mobilized worldwide in Supporting Education support of primary education in the initial 12 countries in the The Bank assists countries working toward meeting the goal Fast-Track partnership; and $350 million of this was mobi- of universal primary education through the Education for lized in 2005.Two new funds were launched in fiscal 2005. All Initiative. It also supports the development of the higher- The Catalytic Fund, with pledges of $290 million through level skills that are essential to economic growth and 2007, provides transitional funding to countries with FTI- competitiveness. endorsed programs.The Education Program Development In fiscal 2005 IBRD lent $356 million for pre-primary Fund, with $6 million committed to date, helps countries and primary education and $492 million for secondary, with sector program development and capacity building in vocational, and tertiary education. IDA provided $297 million preparation for FTI endorsement. Significant financing gaps 20 THE WORLD BANK ANNUAL REPORT 2005 must be filled to ensure sustainable flows to countries already ity has dropped rapidly in the past 25 years, but progress participating in the FTI as well as the many other countries everywhere slowed in the 1990s, and a few countries expected to do so over the next few years. (See www experienced increases.The HIV/AIDS pandemic has contrib- .worldbank.org/education.) uted to these increases in some countries, especially in Africa (see chapter 2). Achieving Gender Equality At current rates of progress, and without a substantial Both research and experience show that helping women and reduction in neonatal mortality, only a few countries are men become equal partners in development--with equal voice likely to achieve the MDG of reducing child mortality to and equal access to resources--accelerates economic growth. one-third the 1990 level by 2015. In fiscal 2005 Bank staff conducted economic and sector Bank lending for child health has steadily increased. In work on the effects of gender-based barriers to development. fiscal 2005, total lending was $174.4 million, and $129 Through innovative research in such areas as public expendi- million was provided for projects in South Asia and Africa ture, pensions, and land reform, the Bank is building practical alone.The Bank continues its analytic work and has knowledge that can help countries address gender issues. intensified its policy dialogue with countries to make child Bank-funded projects increasingly incorporate qualitative health a priority, improve service delivery, strengthen health and quantitative gender analysis in their design, particularly systems (to accelerate progress on scaling up the implemen- in the health, education, and social protection sectors. tation of cost-effective interventions for maximum impact Governance, labor, judicial reform, and trade projects are on poor people), strengthen private and public partnerships, also beginning to address gender issues.The Bank-admin- and improve linkages among the various health care sectors. istered Trust Fund for Gender Mainstreaming, financed (See www.developmentgoals.org.) by the Dutch and Norwegian governments, continues to support innovative projects, including such cross-regional Improving Maternal Health projects as Incorporating Gender Issues into Parliament, and Maternal mortality is an important measure of women's Mainstreaming Women with Disabilities through Community health and is an indicator of the performance of health care Health Care. systems. Globally, modest progress has been made in the During fiscal 2005 the Bank held its first workshop on proportion of births assisted by a skilled health care worker, gender-based violence. It also monitored and evaluated with an annual increase of 1.7 percent between 1989 and its progress in promoting gender equality.The publication 1999. But each year more than 500,000 women die from Improving Women's Lives:World Bank Actions Since Beijing pregnancy-related causes. Access to skilled care, especially reviews the Bank's contributions toward improving women's for poor people, remains a major obstacle. access to resources, reducing gender disparities in rights, and The Bank has made reducing maternal mortality one of strengthening women's voice and empowerment. It renews the its priorities. It provided $191.6 million in fiscal 2005 to Bank's commitment to the 1995 Beijing Platform of Action improve maternal and reproductive health, and provided and the MDGs. (See www.worldbank.org/gender.) $160 million to South Asia and several African countries, where the majority of maternal deaths occur. In addition Reducing Child Mortality to increasing financial support, the Bank has intensified its Each year 10.4 million children die before they reach age efforts to improve health systems and health financing in five; of these, 4 million die in their first month of life and order to address human resources issues and facilitate more than 3 million babies are stillborn. Ninety-nine percent capacity building in program management and service of these deaths occur in the poorest countries. Child mortal- delivery. Bank support in other areas, such as infrastructure, ADDRESSING WORLDWIDE POVERTY 21 Ugandan AIDS orphans. Participatory development is taking root, even in the world's poorest nations.World Bank community-driven project in Haiti. girls' education, and gender equality, will accelerate progress in April 2005, marking Africa Malaria Day.The aim is to in reducing maternal mortality in the long run.The Bank is bring malaria under control faster and on a large scale.The also forging strategic partnerships to build political commit- booster program will combine country leadership, Bank ment for equitable access to maternal health services. (See resources, and cofinancing from multiple partners with www.developmentgoals.org.) technically sound interventions for prevention and treatment. (See www.developmentgoals.org.) Fighting Communicable Diseases HIV/AIDS With 40 million people infected with HIV and Engaging with Civil Society more than 15 million AIDS orphans worldwide, HIV/AIDS This year the Bank continued to work with civil society on a continues to negate the development efforts of many coun- variety of activities, ranging from policy consultations on the tries, particularly in Africa. In all, the Bank has committed Bank's extractive industry review to funding civil society more than $2.5 billion to fighting HIV/AIDS in 67 countries. efforts for HIV/AIDS prevention in thousands of African It provides support for expanding prevention, care, treatment, communities. Civil society participation in poverty reduction and advisory services available to countries and promotes strategies and consultation on Country Assistance Strategies leadership through its global partnerships, especially as increased, and civil society organizations were involved in a cosponsor of the Joint United Nations Programme on 72 percent of new Bank commitments. HIV/AIDS. The Bank carried out research on and supported programs by civil society organizations to strengthen the Tuberculosis Multidrug-resistant tuberculosis is spread- provision of public services and improve governance through ing, particularly in the Europe and Central Asia region.The citizen oversight and participatory budgeting initiatives at disease is the most common opportunistic infection associated the local level. It is supporting thousands of civil society with HIV, increasing the number of people with tuberculosis organizations managing community development, environmen- in many countries in Africa.The Bank supports effective tal protection, and postconflict reconstruction initiatives in tuberculosis control through the Stop TB Partnership and nearly 100 countries. The Bank's work with civil society over through program financing in several of the 22 countries with the past few years is described in a new report, World high incidence of the disease. Efforts have been particularly Bank­Civil Society Engagement: Review of Fiscal Years successful in China and India. Cumulative Bank commitments 2002­2004. to tuberculosis control since 1991 total more than $600 In fiscal 2005 the Board of Executive Directors discussed million in more than 30 countries. the paper "Issues and Options for Improving Engagement between the World Bank and Civil Society Organizations," Malaria Every year more than 500 million people contract which outlines 4 key challenges and proposes 10 action items malaria, and 1.1 million die from the disease.Within the Roll to improve the quality of the Bank's engagement with civil Back Malaria Partnership framework, the Bank collaborates society. In April 2005 the Civil Society Global Policy Forum closely with countries, partner agencies, and civil society brought together almost 200 civil society leaders, government organizations, and has been a key contributor to malaria officials, donor agency representatives, and Bank managers control successes in Brazil, Eritrea, and Vietnam. But in from 50 countries to discuss ways to improve engagement many parts of the world, the burden of the disease remains between the Bank and civil society at the global level.The very high, and drug-resistant forms of the parasite are Bank also held global conferences with various civil society spreading. Recognizing that progress has been too slow and constituencies, including youth, labor unions, and people with uneven, the Bank launched a new malaria booster program disabilities. (See www.worldbank.org/civilsociety.) 22 THE WORLD BANK ANNUAL REPORT 2005 During the UN International Year of Microcredit, the Bank has helped develop frameworks that have enabled savings and credit services such as these in Mexico. TOWARD EFFECTIVE DEVELOPMENT Increasing Internal Efficiency The Bank is helping to build a global framework for effective The Bank's review of the effectiveness of its operating units development and attainment of the Millennium Development sought to identify ways to enhance their performance in the Goals, addressing its own institutional efficiency, and examin- context of a changing external environment with increasingly ing the effectiveness of its programs. differentiated client demands.The review looked at the Bank's client service delivery model, the effectiveness of the Bank's The Global Monitoring Report thematic networks, and issues related to Bank decentraliza- The second Global Monitoring Report, Millennium tion, staffing, and staff skills. Development Goals: From Consensus to Momentum, The findings of the review were discussed and endorsed published jointly by the Bank and the IMF, sets out a five- during the Bank's annual Strategic Forum, attended by point agenda of actions that can help developing and devel- senior managers. Recommendations under consideration oped countries build the momentum needed to attain include ways to strengthen both the Bank's services to coun- the MDGs. Recommendations include anchoring actions in try clients and its work on global issues; options for further country-led development strategies; improving the environ- Bank decentralization; and options for enhancing the effec- ment for stronger, private sector­led economic growth; scaling tiveness of thematic networks by strategically managing up education and health services; dismantling barriers to staff skills, improving knowledge sharing, and reducing trade in developing and developed countries; substantially overlapping mandates. increasing the level and effectiveness of aid by at least doubling the level over the next five years and aligning the Promoting Budget Reform pace of the increase with recipient countries' absorptive The Bank's recent budget reform initiative, launched during capacities; and improving the quality of aid. Special attention fiscal 2005, builds on improvements made over the past must be given to accelerating progress in Africa, the region several years and supports the Bank's long-term focus on farthest from attaining the goals. (See www.worldbank results. Corporate and unit strategic decision making and .org/globalmonitoring.) performance management will increasingly be driven by a process of setting clear strategic objectives and deploying Managing for Results resources to achieve desired impacts.The three core goals of The need to use information to improve decision making the reform are to strengthen the new multiyear budget frame- and steer country-led development processes toward clearly work, to give management the flexibility and room to manage defined goals is now at the forefront of the global develop- effectively, and to hold management accountable for its ment agenda. During fiscal 2005 the pilot phase of the performance. Business planning and monitoring processes will results-based Country Assistance Strategy methodology be simplified, and the focus of attention will gradually shift was completed, and a stocktaking paper was reviewed by from hitting absolute targets at the end of each fiscal year the Board. Efforts to strengthen country-level statistical toward supporting continually improved resource management capacity continued, and the IDA14 (14th Replenishment of in pursuit of medium-term goals. IDA) Results Measurement System was developed. (See A principal element of the new system is the Strategy and chapter 3 for more on IDA.) At the global level, the Bank Performance Contract, which summarizes each unit's strategic coordinated the preparation of a sourcebook on managing direction, explains the trade-offs and choices it makes in for development results with the Joint Venture on allocating its resources, discusses the risks it faces in achiev- Managing for Development Results. (See www.mfdr.org ing its objectives, and identifies key performance indicators, /sourcebook.html.) which will be used to track results and performance. ADDRESSING WORLDWIDE POVERTY 23 Participants at the GDLN Center in Guizhou, China. Simplifying Bank Processes Support Credits worth $1.4 billion with other donors, including The Bank continued its program to simplify and modernize credits for Ethiopia, Ghana, and Rwanda. It collaborated with its instruments, processes, and policies this year. Adjustment other donors to produce analytic reports on poverty assessment lending was renamed development policy lending to empha- and governance, and fiduciary diagnostics in Kenya,Tanzania, size and reflect country ownership and support the efforts of and several Central American countries. (See www client governments to meet their countries' needs. Changes .aidharmonisation.org and www.countryanalyticwork.net.) were introduced in documents and procedures to allow for faster processing, so that borrowers receive funds and can Increasing Transparency address needs more promptly. As part of its work to support Fiscal 2005 was a landmark year for the Bank's transparency new ways of doing business, the Bank began implementing an and disclosure agenda. In March the Board approved a number updated policy on expenditure eligibility that makes it easier to of revisions to the Bank's disclosure policy that will extend finance expenditures that borrowers must make to implement and simplify information disclosure, reaffirming the Bank's projects. (See www1.worldbank.org/operations/eligibility.) commitment to ensuring transparency about its activities. The Bank has also begun to simplify and modernize legal These changes included adopting a unified Country Assistance agreements that underpin IBRD loans and IDA credits and Strategy disclosure policy for IBRD and IDA; disclosing Board grants, with a view to clarifying their content, facilitating nego- minutes (except those of executive sessions), the staff manual, tiations with member countries, and harmonizing them with the the budget paper, and the staff compensation paper; and legal agreements of other international financial institutions in simplifying the disclosure clearance procedures. the long term. This fiscal year also witnessed the introduction of more open Simplification is an ongoing process, and although the focus policies on the disclosure of development-policy lending docu- is now on implementation, the Bank will continue to readjust ments and Country Policy and Institutional Assessment (CPIA) its policies, procedures, and instruments as necessary to meet ratings. CPIA ratings assess the quality of a country's policy borrowers' changing needs. and institutional framework and its suitability for fostering sustainable, poverty-reducing growth and effectively using devel- Harmonizing with Other Donors opment assistance. (See "Institutional Integrity" in this chapter, During fiscal 2005 the Bank helped organize the High-Level and "Low-Income Countries under Stress" in chapter 3.) Forum on Aid Effectiveness, held in Paris.The Forum brought together 620 participants representing 90 donor and partner Evaluating the Bank's Work countries, 27 aid institutions, and a range of civil society The Operations Evaluation Department (OED) is an indepen- organizations. It adopted the Paris Declaration, which commits dent unit within the World Bank that reports directly to the parties to improving ownership, harmonization, alignment, Bank's Board of Executive Directors. Its evaluations seek to managing for results, and mutual accountability. It also agreed ensure accountability, provide an objective basis for assessing on 12 indicators for monitoring progress, with targets for 2010 the Bank's work, and allow Bank staff to learn from experience. to be set by September 2005. OED's 2003 Annual Review of Development Effectiveness Bank support that pools funds with other donors and found that developing countries have improved their policies. governments through common mechanisms, often under Moreover, countries whose policies improved over the period sectorwide and program-based approaches, accounted for 1999­2003 tended to grow at more than twice the rate of $773 million in 9 projects in fiscal 2005, including support for those whose policies did not improve. However, growth is not health in Bangladesh and Nepal, and education in Morocco enough to reduce poverty.The 2004 review reported that the and Vietnam.The Bank also coordinated 17 Poverty Reduction Bank's poverty reduction strategy appropriately highlights 24 THE WORLD BANK ANNUAL REPORT 2005 both growth and the social aspects of development. But it may downplay sectors that cut across and complement these pillars, such as infrastructure, rural and urban development, and environment. OED has evaluated a wide range of activities relevant to these development and poverty reduction issues. A review of Country Assistance Evaluations found that successful country programs are tailored to the country context.The Bank needs to deepen its country knowledge and link its assistance programs more closely with progress on country reforms. OED's review of global programs found that the Bank is exploiting its comparative advantage more effectively at the global level than at the country level. But linkages between global programs and the Bank's country operations are weak. A joint evaluation with the IMF's Independent Evaluation Office found that the poverty reduction strategy process has helped focus stakeholders in low-income countries on poverty, results, and an overarching framework for aid management. In many cases, however, countries have focused more on completing documents that give them access to resources than on improving their poverty reduction efforts. development.To increase all three, the World Bank is strength- Finally, OED assessed the relevance and effectiveness of ening its Public Information Centers and services worldwide. Bank support for building public sector capacity in Africa. By providing access to information on Bank projects and It found that the Bank's success varies across sectors as well development in general, the centers encourage public partici- as from country to country. Most capacity-building support pation in dialogue and help citizens make informed decisions is designed and managed project by project, the report about issues affecting their lives. In 2004 more than 90,000 concluded, making it difficult to capture cross-sector issues people used public information services, and the number is and learn lessons across operations. expected to triple in 2005. Public Information Centers are located in 75 capital cities REACHING OUT TO CLIENTS throughout the world. Staff help visitors find information The Bank increased its outreach and accessibility in client through a variety of methods, depending on the technology countries with a number of initiatives this year, including available. Staff also respond to public inquiries, listen to expansion of its Public Information Centers worldwide. It also public concerns, and arrange seminars, dialogues,Webcasts, launched a number of Web-based information resources, and and radio programs that address development topics.Where continued its work through the Global Development Learning Internet access remains limited, the Bank, in partnership with Network (see box 1.2). local learning institutions, has set up more than 60 satellite centers to provide countrywide access to information. Development Information Services in Client Countries Fiscal year 2005 saw the establishment of five new Transparency, accountability, and the sharing of information Development Information Centers, which operate as clear- promote good governance and are essential for sustainable inghouses for information on development from various ADDRESSING WORLDWIDE POVERTY 25 BOX 1.2 THE WORLD IN ONE ROOM · "The challenges we face in the Caribbean today are the same The Network is a global partnership of over 70 learning centers ones Africa faced 10 years ago," reflected Nancy George, in more than 60 countries. In fiscal 2005 more than 35,000 chair of the HIV/AIDS Steering Committee for Jamaica's people worldwide, in more than 900 videoconference-based technical university, in a videoconference that connected health activities, used it to learn from one another's efforts to fight practitioners in Jamaica's Global Development Learning poverty. Policy makers coordinated humanitarian aid efforts in Network (GDLN) Center with colleagues in Barbados, Ghana, Côte d'Ivoire; mayors in Bosnia and Herzegovina took a course St. Lucia,Tanzania, and Uganda."We can learn so much from on delivering basic services to poor people; private companies in your experience!" eight Latin American countries debated their social responsibil- ity; and indigenous people in Alaska, Peru, and the Philippines · Federico Macaranas, executive director of the Asian Institute discussed rural poverty. of Management Policy Center, and his colleagues in the Philippines linked with experts from four countries to discuss At the launch of GDLN in June 2000, former World Bank ways of improving data collection."GDLN allows us to President James D.Wolfensohn declared,"This is the end harness expertise from all over the world," he said. Interactive of geography as we know it."Through GDLN, distance is no technologies and learning methods allow development practi- longer a constraint to transferring knowledge and experience tioners in different locations to communicate as if they were from the people who have it to those who need it. (See www in the same room. .gdln.org.) organizations, including the Bank.These partnerships between in fiscal 2005.The pilot created a new corporate Web site in the Bank, other multilateral development banks, civil society French and expanded the existing Arabic and Spanish Web organizations, academic institutions, and government agen- sites to include material beyond regional information.Three cies are transforming the goal of disseminating and sharing months after relaunching the Web sites, visitor numbers information crucial to the sustainability of development into doubled to the Arabic and French sites and increased by one- a reality. (See www.worldbank.org/publicinformation.) third to the Spanish site.The Bank also publishes Russian and Chinese Web sites. (See www.worldbank.org.) Client Connection Web Site Client Connection, a secure Web site for World Bank borrowers Youth Web Site and project-implementing agencies, was launched in September Youthink! is the World Bank's online resource for students, 2003 to promote informed decision making and reduce the teens, and kids on development and global issues.Written cost of doing business with the Bank. Since then, over 4,000 in age-appropriate language,Youthink! tackles development users in more than 130 countries have registered with Client subjects by exploring those angles that young people care Connection. Users can access public Bank information, secure about and can relate to.Youthink! also invites young people to information on their loan portfolios, and check on the status share their thoughts, opinions, and experiences by submitting of procurement, disbursement, and repayment transactions material for publication to the Web site. (See http://youthink through a user-friendly, client-focused interface. .worldbank.org.) Informal feedback and client surveys show a high level of satisfaction with the service, and daily usage rates have AIDS Media Center Web Site steadily increased. Clients welcome the transparency of the The Bank launched the innovative AIDS Media Center in Web site and the ease of access to portfolio information, and fiscal 2005 to provide journalists in developing countries many report that it has increased efficiency and reduced costs. with a global source for the most recent HIV/AIDS news, New features will be added in the coming years, allowing online information, and analysis, and to help increase the accuracy, requests for the withdrawal of loan funds and other financial quality, and effectiveness of their reporting on the disease and transactions. (See http://clientconnection.worldbank.org.) related issues.The strength of the Web site comes from its broad coalition of contributing partners, including the BBC Multilingual Web Sites Trust, the International AIDS Vaccine Initiative, InterNews, The Bank's public Web site, with more than 1.5 million visitors the Johns Hopkins Bloomberg School of Public Health, the a month, has become a primary conduit for communication Kaiser Family Foundation, One World, the Panos Institute, and knowledge dissemination. Roughly a third of the Web site PlusNews (run by the Integrated Regional Information visitors are from non-Anglophone countries and make up the Network of the United Nations), the Joint United Nations Bank's fastest-growing audience online. In an effort to better Programme on HIV/AIDS, the World Health Organization, reach these clients and support the Bank's new Translation and a growing list of regional journalists' associations. (See Framework, the Bank initiated the Multilingual Web Pilot www.aidsmedia.org.) 26 THE WORLD BANK ANNUAL REPORT 2005 2 REGIONAL PERSPECTIVES WORLD BANK REGIONS,COUNTRY OFFICES,AND BORROWER ELIGIBILITY The World Bank today operates out of more than 100 offices worldwide. Increased presence in client countries is helping the Bank to better understand, work more closely with, and provide faster service to clients.Three-fourths of outstanding loans are managed by country directors located away from the Bank's Washington, DC, headquarters.Thirty percent of staff are now based in country offices. Countries eligible for IBRD funds only Countries eligible for blend of IBRD and IDA funds Countries eligible for IDA funds only Inactive IDA-eligible countries Offices of the World Bank Offices with the Country Director present This map reflects the following changes in fiscal 2005:The Czech Republic graduated from borrower status; and Libya became eligible for IBRD borrowing. 28 THE WORLD BANK ANNUAL REPORT 2005 IBRD 32613R1 AUGUST 2005 REGIONAL PERSPECTIVES 29 AFRICA Africa's economy grew by 4.4 percent in 2004, with virtually Paper (PRSP) process, African countries have taken much all countries reporting positive growth.The region is projected more effective ownership of their own development. Both to grow by 4.1 percent in 2005 as the benefits of past reforms NEPAD and the PRSP process are based on partnerships with and a more peaceful environment continue to translate into donors, dependable financial flows, measurable results, empow- expanded economic activity. But the region faces serious chal- erment of poor people, participation by civil society and local lenges. More than 314 million Africans live on less than $1 a communities, and accountability of recipient governments to day--nearly twice as many as in 1981.The continent is home their own people.The Bank has endorsed the Commission for to 34 of the world's 48 poorest countries and 24 of the 32 Africa report, which emphasizes accelerated economic growth countries ranked lowest in human development.The HIV/AIDS and the participation of poor people in economic expansion. pandemic costs Africa 1 percentage point of per capita growth a year, while malaria kills about 2,800 Africans a day. (See WORLD BANK ASSISTANCE www.worldbank.org/aids and www.aidsmedia.org.) The World Bank is the largest provider of development Some progress toward improving human development was assistance to Africa, and it has increased its support dramati- made during the past year, but the challenges remain enor- cally in the past five years. IDA commitments of $3.9 billion mous.To address them, several global development initiatives in fiscal 2005 represented an increase of more than 80 were launched in fiscal 2005. Key among them were calls for percent compared with fiscal 2000, and disbursements of $4 a doubling of aid, fairer trade, and greater debt relief. billion, more than double the fiscal 2000 figure. Africa has Since the establishment of the New Partnership for Africa's also benefited from a total of $3.1 billion of relief from the Development (NEPAD) and the Poverty Reduction Strategy Heavily Indebted Poor Countries Initiative. (See chapter 3.) AFRICA FAST FACTS Total population: 0.7 billion Population growth: 2% TOTAL FISCAL 2005 TOTAL FISCAL 2005 Life expectancy at birth: 46 years New Commitments Disbursements Infant mortality per 1,000 births: 101 IBRD $0 million IBRD $24.1 million Female youth literacy: 77% IDA $3,887.5 million IDA $3,994.6 million 2004 GNI per capita: $600 Number of people living with HIV/AIDS: 25.2 million Portfolio of projects under implementation as of June 30, 2005: $16.5 billion Note: Life expectancy at birth and infant mortality rate per 1,000 births are for 2003; female youth literacy is for the most recent year available from 2000 to 2002; HIV/AIDS data are from the June 2004 UNAIDS Report on the Global AIDS Epidemic; other indicators are for 2004 from the World Development Indicators Database. 30 THE WORLD BANK ANNUAL REPORT 2005 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Angola Chad Gabon Malawi São Tomé and Principe Togo Benin Comoros The Gambia Mali Senegal Uganda Botswana Congo, Democratic Ghana Mauritania Seychelles Zambia Republic of Burkina Faso Guinea Mauritius Sierra Leone Zimbabwe Congo, Republic of Burundi Guinea-Bissau Mozambique Somalia Côte d'Ivoire Cameroon Kenya Namibia South Africa Equatorial Guinea Cape Verde Lesotho Niger Sudan Eritrea Liberia Nigeria Swaziland Central African Republic Ethiopia Madagascar Rwanda Tanzania The Bank's strategy for assisting Africa is outlined in ment of the African Institutes for Science and Technology, the Strategic Framework for IDA's Assistance to Africa, which seek to increase scientific and technical achievement which draws on the report Can Africa Claim the 21st through regional approaches. Century? The framework focuses on reducing conflict, improving governance, increasing economic growth, enhancing INCREASING ECONOMIC GROWTH,COMPETITIVENESS, competitiveness and trade, and improving aid effectiveness. AND TRADE The strategy is complemented by a vision of "hopeful real- Fifteen African countries averaged economic growth of 5 ism" about Africa's capacity to reduce poverty.This vision percent a year over the past decade, but their success was not focuses on five areas: developing the private sector, increasing enough to offset the continuing drop in Africa's share of world regional integration, building capacity, doubling aid flows, trade.Trade expansion requires strengthening the agriculture and increasing Africa's share of world trade. sector, which employs 70 percent of Africa's labor force and In June 2005 the Bank sponsored a conference in Cape accounts for 40 percent of its exports.The Bank is promot- Town, South Africa, to focus on the challenge of financing ing efforts to meet the objective of NEPAD's Comprehensive Africa's huge infrastructure needs. More than 200 policy makers, financial experts, and private sector and civil society representatives attended. (See also the IFC and MIGA annual reports.) REDUCING CONFLICT Conflict is estimated to cost affected African countries 2.2 percentage points of economic growth each year. In collabora- tion with NEPAD, the Bank is working to achieve peace and stability.These conditions are needed if countries in the region are to attract foreign investment and increase their exports. In fiscal 2005 the Bank provided assistance to 17 conflict- affected countries and low-income countries under stress (see chapter 3). It also worked to increase transparency and reduce incentives for illegal trade in commodities linked to conflict, such as oil, gas, diamonds, timber, and precious metals. A key objective of NEPAD is to help build capable and effective states that provide basic services, promote equity and security, and create an enabling environment for investment, wealth creation, and wealth sharing, particularly through the peer review mechanism. In support of this objective, the Bank directs more than 20 percent of its new lending toward public sector governance. Interventions cover expenditure manage- ment, civil service reform, decentralization, accountability mechanisms, and legal and judicial reform. The Bank also provides catalytic grants to the Partnership for Capacity Building in Africa and assistance for the establish- REGIONAL PERSPECTIVES 31 African Agricultural Development Program of increasing ing about $550 million.The programs cover trade facilitation, agricultural output by 6 percent a year through 2015. It regional approaches to HIV/AIDS, private sector develop- is working to liberalize intraregional trade, set up capital ment, regional power systems, telecommunications, transport, markets, eliminate cascading tariffs that penalize African tertiary health and education, agricultural research, migra- products, and help ensure the successful conclusion of the tory pests, food security, transnational environmental issues, Doha Round of trade negotiations. and the weather-related vulnerability of rural communities. BUILDING THE PRIVATE SECTOR The private sector has the potential to be the engine for growth and job creation, but changes in the business environ- ment are needed if that potential is to be realized. Africa is a high-cost, high-risk place to do business, according to the Bank's Doing Business in 2005 report. As a result, it received just $9 billion of the world's $135 billion in foreign direct investment in 2003.To help make Africa more attrac- tive to foreign investors, the Bank is promoting constructive and practical partnerships between Africa's private sector and national governments. It also facilitates innovative approaches to financing. For example, the Bank, IFC, and MIGA are working together to support increased private participation in priority infrastructure projects.The Bank and IFC have also jointly begun a micro, small, and medium enterprises initiative. SIMPLIFYING AND HARMONIZING AID FLOWS Africa requires substantial increases in assistance to reach the 7 percent annual economic growth needed to achieve the Millennium Development Goals, to finance $17 billion in annual infrastructure investments, and to fund the $2.1 billion INCREASING REGIONAL INTEGRATION needed to attain the goal of Education for All.The Bank, With 15 landlocked economies and a gross domestic product which chairs the Strategic Partnership with Africa, is work- the size of Belgium's, Africa needs more effective regional ing to simplify, harmonize, and reduce the cost of providing integration to prosper. In July 2004 the Bank established a aid to Africa. It is urging international partners to honor Regional Integration Department that will fund multicountry the promises they made in 2003 at the Monterrey Summit pilot projects worth about $500 million by fiscal 2007. Since to increase assistance by $12 billion a year and to fulfill the fiscal 2001 the Bank has supported 11 similar projects total- commitments they made in the Commission for Africa report. 32 THE WORLD BANK ANNUAL REPORT 2005 TABLE 2.1 WORLD BANK LENDING TO BORROWERS IN AFRICA BYTHEME AND SECTOR | FISCAL 2000­2005 MILLIONS OF DOLLARS THEME 2000 2001 2002 2003 2004 2005 Economic Management 78.2 138.5 138.7 37.8 67.8 46.5 Environmental and Natural Resource Management 172.4 110.0 159.9 227.0 195.3 217.2 Financial and Private Sector Development 466.7 625.8 780.7 383.6 810.9 768.2 Human Development 208.5 399.4 739.0 811.4 618.2 620.2 Public Sector Governance 495.3 429.6 851.9 432.4 818.5 708.0 Rule of Law 26.7 34.0 22.5 34.5 28.3 30.9 Rural Development 151.8 296.3 329.2 384.1 360.7 537.2 Social Development, Gender, and Inclusion 210.5 491.8 347.4 420.0 374.3 221.8 Social Protection and Risk Management 140.5 376.4 98.3 543.7 209.2 294.3 Trade and Integration 53.7 261.5 46.4 37.2 371.5 232.0 Urban Development 154.9 206.1 279.6 425.5 261.2 211.4 Theme Total 2,159.1 3,369.6 3,793.5 3,737.2 4,115.9 3,887.5 SECTOR Agriculture, Fishing, and Forestry 111.5 212.0 210.4 303.4 268.5 215.3 Education 189.8 209.5 472.6 423.6 362.9 369.0 Energy and Mining 176.3 198.0 490.3 324.4 365.8 509.5 Finance 118.4 200.1 192.8 67.2 165.7 68.6 Health and Other Social Services 183.1 889.9 616.6 775.9 723.1 590.3 Industry and Trade 104.7 170.6 266.7 92.7 95.4 253.8 Information and Communication 17.3 21.1 33.8 41.4 52.9 20.0 Law and Justice and Public Administration 838.2 880.8 906.9 721.8 1,004.0 1,077.5 Transportation 263.9 229.8 491.1 690.5 716.6 507.2 Water, Sanitation, and Flood Protection 155.9 357.8 112.2 296.3 360.8 276.2 Sector Total 2,159.1 3,369.6 3,793.5 3,737.2 4,115.7 3,887.5 Of which IBRD 97.7 0.0 41.8 15.0 0.0 0.0 Of which IDA 2,061.4 3,369.6 3,751.6 3,722.2 4,115.7 3,887.5 Note: Fiscal 2005 includes Guarantees and Guarantee Facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 33 EAST ASIA AND PACIFIC The economy of the East Asia and Pacific region is growing burden on poor and vulnerable people. If rapid growth is to rapidly, and income poverty is falling.The region grew at 8.5 continue, more attention needs to be paid to preserving the percent in 2004 and accounted for a third of the growth in environment, managing natural resources, providing more world trade.The number of East Asians living on less than and better infrastructure, improving capital markets, and $2 a day declined by about 250 million between 1999 and continuing to strengthen institutions responsible for managing 2004--at a time when the population grew by 80 million. the economy. As the devastating earthquake and tsunami in Countries in the region are on track to meet the Millennium December 2004 demonstrated, the region is also vulnerable to Development Goal for poverty reduction, although there is wide sudden natural or external shocks, adding to the challenge of variation in the pace of progress across and within countries. maintaining stability and growth. China continues to exert strong economic influence, through trade and cross-border production networks. Its growth has WORLD BANK ASSISTANCE helped strengthen economic integration within East Asia and The Bank's overall strategy for the region aims to support has increased the region's integration into the global economy. broad-based economic growth, promote higher levels of Many countries are considering how to maximize the opportu- trade and integration within the region and with the global nity China presents while managing the challenges. economy, enhance the environment for governance at both High prices for natural resources, especially oil, likely the national and subnational levels, increase social stability, will slow growth in the year ahead. Several other risks also and achieve the Millennium Development Goals.To help reach threaten to reduce the rate of growth. In some countries, those goals, the Bank approved $2.9 billion for the region in corruption is impeding investment--and imposing a heavy fiscal 2005, $1.1 billion in IDA grants and credits and $1.8 EAST ASIA AND PACIFIC FAST FACTS Total population: 1.9 billion Population growth: 0.8% TOTAL FISCAL 2005 TOTAL FISCAL 2005 Life expectancy at birth: 70 years New Commitments Disbursements Infant mortality per 1,000 births: 32 IBRD $1,809.8 million IBRD $1,837.4 million Female youth literacy: 98% IDA $1,073.5 million IDA $685.0 million 2004 GNI per capita: $1,280 Number of people living with HIV/AIDS: 2.3 million Portfolio of projects under implementation as of June 30, 2005: $19.9 billion Note: Life expectancy at birth and infant mortality rate per 1,000 births are for 2003; female youth literacy is for the most recent year available from 2000 to 2002; HIV/AIDS data are from the June 2004 UNAIDS Report on the Global AIDS Epidemic; other indicators are for 2004 from the World Development Indicators Database. 34 THE WORLD BANK ANNUAL REPORT 2005 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Cambodia Kiribati Malaysia Mongolia Philippines Timor-Leste China Korea, Republic of Marshall Islands Myanmar Samoa Tonga Fiji Lao People's Micronesia, Federated Palau Solomon Islands Vanuatu Indonesia Democratic Republic States of Papua New Guinea Thailand Vietnam billion in IBRD loans. Carbon trust fund contracts in the needed to resolve commercial disputes.With Bank support, amount of $33.1 million were signed this year, bringing the the Indonesian government is proposing to replace its regional total committed for reducing global greenhouse gas system of licensing and approval of investments with one of emissions to $44.9 million. registration and investment promotion. Efforts are focusing To support the new Indonesian government's efforts to on streamlining procedures required to start a business--a better manage public finances and fight corruption, the Bank process that currently takes 151 days. approved a $300 million development policy loan and a $60 The Bank is helping Cambodia develop a strategy for million financial management reform program just months economic growth by promoting private sector development after the new administration took office.The Bank also following the end of its preferential quotas on garments. In approved new assistance strategies for Cambodia, the Lao China the Bank is supporting efforts to improve cross-border People's Democratic Republic, the Pacific Island states, and links with Mongolia and the Russian Federation and to the Philippines. Following the December 26, 2004, tsunami modernize the banking system. In Vietnam the Bank is helping and earthquake, the Bank established a new multidonor to strengthen the customs system and modernize the bank- trust fund at the Indonesian government's request to help ing system. In the Pacific Island states and the Philippines, coordinate some $500 million in grant funding contributed for measures to strengthen remittance and labor migration systems reconstruction. Also, $20 million from previous Bank financing are being developed with the Bank's support and advice. was redirected toward the tsunami reconstruction effort, and Governance continues to be a major emphasis for the a $25 million grant was made. An additional $19 million Bank in East Asia. In fiscal 2005 the Bank conducted a in IDA credits was approved for this purpose in fiscal 2005. regional study on decentralization that focuses on ways To tailor its approach to individual countries, the Bank frontline officials can make local governments more effec- is increasingly working in partnership with other organiza- tive.The findings were published by the Bank in East Asia tions (see box 2.1).This fiscal year it began preparing a Decentralizes: Making Local Government Work. In selected joint assistance strategy for Cambodia with the United countries the Bank sought ways to identify and minimize Kingdom's Department for International Development and fraud and corruption at various stages of the Bank project the Asian Development Bank. In Thailand the Bank entered cycle. It is supporting judicial reform at the local level in into a partnership with the Thai government, the Japan Indonesia and systemic reform in the Philippines. Governance Bank for International Cooperation, the United States­Asia is also a cornerstone of the Country Assistance Strategies for Environment Partnership, and the United Nations Development Cambodia and the Philippines. Programme to strengthen environmental management. Fiscal 2005 also saw the publication of the first joint study on infra- FOSTERING PARTICIPATION IN DEVELOPMENT structure by the Asian Development Bank, the Japan Bank for Community development initiatives are at the core of the International Cooperation, and the World Bank. Bank's work to increase social stability in the region. In (See also the IFC and MIGA annual reports.) Aceh, Indonesia, where tsunami reconstruction work is being carried out alongside efforts to bring peace and stability to BUILDING THE CLIMATE FOR INVESTMENT the region, the Kecamatan Development Program is bringing The Bank completed four investment climate assessments in communities together to plan for the future with the help of the region in fiscal 2005, and another four are under way. In trained local facilitators. China city leaders are focusing on problems identified in the Fighting communicable diseases, increasing access to 23-city investment climate survey.The Harbin city government education, and improving the environment are the focus is working to reduce, from 400, the number of court days of Bank efforts to help countries in the region achieve the REGIONAL PERSPECTIVES 35 Millennium Development Goals. In Papua New Guinea and Vietnam, the Bank is working to arrest the spread of HIV/AIDS. In the Philippines it is helping the government improve access to clean water and sanitation with an IFC investment for drinking water and a World Bank project for wastewater treatment in Manila. As countries comply with the Kyoto Protocol, the demand for carbon finance is growing, particularly in China but also in the Philippines,Vietnam, and other countries in the region. In China the Bank and the Global Environment Facility are cofinancing a Renewable Energy Scale-Up Program, and the Bank is financing the China Heat Reform and Building Energy Efficiency Project, which will improve indoor and outdoor air quality. BOX 2.1 CONNECTING EAST ASIA: ADDRESSING THE INFRASTRUCTURE CHALLENGE "Connecting East Asia: A New Framework for Infrastructure," The Nam Theun 2 Hydropower Project was approved in fiscal the first joint study by the World Bank, the Asian Development 2005 after more than a decade of study. It will provide the Lao Bank, and the Japan Bank for International Cooperation, People's Democratic Republic with much-needed revenues for proposes a new framework for infrastructure development. poverty reduction programs.The private sector project, which is The approach seeks to ensure that infrastructure development being guaranteed by the World Bank and MIGA and supported by allows more people to share in the benefits of economic growth. the Asian Development Bank, the European Investment Bank, the It promotes accountability and manages risks, particularly the Agence Française de Développement, and the Nordic Investment risk of corruption. Launched in Tokyo this year, the study is being Bank, will enable Lao PDR to sell electricity to Thailand. discussed throughout the region in consultations with policy makers, companies, official financiers, and other stakeholders. 36 THE WORLD BANK ANNUAL REPORT 2005 TABLE 2.2 WORLD BANK LENDING TO BORROWERS IN EAST ASIA AND PACIFIC BYTHEME AND SECTOR | FISCAL 2000­2005 MILLIONS OF DOLLARS THEME 2000 2001 2002 2003 2004 2005 Economic Management 0.0 0.0 4.8 29.7 0.0 87.0 Environmental and Natural Resource Management 880.4 399.3 102.3 232.3 432.2 446.9 Financial and Private Sector Development 627.6 310.9 512.8 458.8 553.9 340.6 Human Development 81.1 52.6 226.4 152.7 164.6 184.6 Public Sector Governance 556.2 65.1 127.4 341.5 299.0 344.5 Rule of Law 9.3 3.8 20.3 7.3 67.3 45.8 Rural Development 430.3 341.6 360.9 411.7 400.9 484.1 Social Development, Gender, and Inclusion 72.1 248.0 173.0 143.7 167.2 241.1 Social Protection and Risk Management 55.2 239.4 138.7 161.5 5.5 88.7 Trade and Integration 36.2 40.0 43.3 138.0 82.9 126.5 Urban Development 230.6 433.1 63.6 233.6 399.2 493.5 Theme Total 2,979.1 2,133.8 1,773.6 2,310.8 2,572.7 2,883.3 SECTOR Agriculture, Fishing, and Forestry 118.4 109.7 151.2 106.7 290.4 207.9 Education 84.4 14.8 134.6 225.7 118.6 228.0 Energy and Mining 640.5 142.2 314.5 254.3 67.2 359.1 Finance 34.4 87.5 219.2 22.7 49.0 213.1 Health and Other Social Services 118.4 217.3 243.8 184.1 84.3 204.3 Industry and Trade 28.8 151.8 9.4 32.5 78.7 159.1 Information and Communication 20.0 12.5 11.1 6.6 0.0 5.0 Law and Justice and Public Administration 592.2 257.4 115.2 385.1 257.5 436.6 Transportation 584.4 729.7 540.2 684.3 1,209.9 306.7 Water, Sanitation, and Flood Protection 757.7 410.8 34.4 408.7 417.1 763.6 Sector Total 2,979.1 2,133.8 1,773.6 2,310.8 2,572.7 2,883.3 Of which IBRD 2,495.3 1,136.1 982.4 1,767.1 1,665.5 1,809.8 Of which IDA 483.8 997.7 791.2 543.7 907.2 1,073.5 Note: Fiscal 2005 includes Guarantees and Guarantee Facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 37 Fishery development under the Assam Rural Infrastructure and Agricultural Services Project (India). SOUTH ASIA South Asia has the opportunity to reduce poverty significantly violence; and Nepal continues to face a volatile political in the coming decades. Gross domestic product in the region situation. At the same time, elections in Afghanistan created grew an average of 5.6 percent a year between 1995 and conditions for improved governance and development, changes 2004 and is expected to grow 6.2 percent in 2005. in elected governments in India and Sri Lanka resulted in a With increased foreign reserves and stable macroeconomic shift toward policies that benefit the rural poor, and Pakistan policies, prospects for continued growth in the region remain enjoyed significant growth for the fourth consecutive year. strong. Bangladesh, Sri Lanka, and some states in South Dialogue among members of the South Asian Association India have already made substantial progress in human for Regional Cooperation is providing new opportunities development. But South Asia still faces enormous challenges. for economic integration--together with new challenges. Of the region's 1.4 billion people, 500 million live on less than Infrastructure needs to be developed within and between $1 a day--about half the world's poor. Human deprivation countries, and a private sector that can respond to new is severe, particularly for disadvantaged populations and demands needs to be fostered. children.The rate of illiteracy, at 44 percent, is the highest in the world, and the region accounts for one-third of all WORLD BANK ASSISTANCE maternal deaths. The World Bank approved lending of nearly $5 billion to Extraordinary events took place in South Asia in late South Asia in fiscal 2005, $2.1 billion from IBRD and 2004 and early 2005. Sri Lanka, southern India, and the $2.9 billion from IDA.This assistance seeks to help meet Maldives were devastated by the tsunami (see box 2.2); the region's vast urban and rural infrastructure needs and Bangladesh was plagued by floods and a rise in political address the deficiencies in its investment climate. Bank SOUTH ASIA FAST FACTS Total population: 1.4 billion Population growth: 1.6% TOTAL FISCAL 2005 TOTAL FISCAL 2005 Life expectancy at birth: 63 years New Commitments Disbursements Infant mortality per 1,000 births: 66 IBRD $2,095.9 million IBRD $1,067.3 million Female youth literacy: 62% IDA $2,897.4 million IDA $3,034.6 million 2004 GNI per capita: $590 Number of people living with HIV/AIDS: 5.2 million Portfolio of projects under implementation as of June 30, 2005: $18.2 billion Note: Life expectancy at birth and infant mortality rate per 1,000 births are for 2003; female youth literacy is for the most recent year available from 2000 to 2002; HIV/AIDS data are from the June 2004 UNAIDS Report on the Global AIDS Epidemic; other indicators are for 2004 from the World Development Indicators Database. 38 THE WORLD BANK ANNUAL REPORT 2005 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka support fosters accelerated human development in the region to develop information technology that will improve public by focusing on four cross-cutting issues: equity and inclusion, service delivery, increase private sector competitiveness, and public accountability, HIV/AIDS, and regional integration. bridge the digital divide. A strong component of the Bank's strategy is its analytic and advisory work (see chapter 3). A recent report on fiscal decentralization to rural governments in India reviewed panchayat council finances and made recommendations for improving the system.The Bank discussed a poverty and vulnerability study on Afghanistan, completed a study on persistent malnutrition in India, and completed a gender assessment of Pakistan, which is under discussion with the government. (See www.worldbank.org/sar.) Partnerships with other development agencies are play- ing an increasing role in the Bank's assistance in the region. Support for human development is strong. Sectorwide approaches, as well as development policy loans, are becoming the norm for health and education operations in Bangladesh, India, Nepal, and Pakistan. A new Country Assistance Strategy for India was discussed by the Bank in fiscal 2005.The strategy underscores equity and inclusion by signaling a shift in emphasis toward lagging regions, such as Orissa, one of the country's poorest states. (See also the IFC and MIGA annual reports.) BUILDING THE CLIMATE FOR INVESTMENT The Bank completed several investment climate assessments in South Asia in fiscal 2005.These included the Bank's first postconflict assessment of Afghanistan, a third assessment of India, the first subnational assessment (for the Indian state of Orissa), and a rural and urban assessment of Sri Lanka. Together with IFC and MIGA, the Bank held workshops for stakeholders on this work throughout the region. The Bank approved $100 million to support the reform of tax administration and $300 million to support banking sector reforms in Pakistan. It also approved a $400 million loan to support India's rural roads program and a $620 million loan to improve part of the national highway system in the states of Uttar Pradesh and Bihar. It approved a $120 million loan to India to support the development of small and medium enterprises and a $53 million credit to Sri Lanka REGIONAL PERSPECTIVES 39 FOSTERING PARTICIPATION IN DEVELOPMENT to the Indian state of Tamil Nadu to support development of Central to the Bank's strategy in the region is the principle its health system, and $300 million to Bangladesh to improve that South Asia's main resource is its people. Bank assist- the quality of and access to health care. ance is geared toward helping improve the standard of living In India the Bank approved a $125 million loan to support across all tiers of society and removing obstacles that development in Orissa.The credit will help reduce fiscal stress prevent people from participating in development and sharing and debt, freeing up resources for poverty reduction.The Bank in its benefits. approved a $200 million Development Support Credit to help During fiscal 2005 the Bank increased its support to rural Bangladesh pursue broad reforms to accelerate growth and development, education, and health, with an emphasis on reduce poverty. A similar operation was approved for Pakistan, improving the delivery of social services. In Afghanistan the making $300 million available to support that country's Bank provided a $35 million credit to improve the quality of poverty reduction strategy. education and a $40 million grant to fund higher education. An area of ongoing concern is HIV/AIDS, which has In Bangladesh it provided $100 million to improve access to infected about 5 million people in South Asia.The Bank has and the quality of secondary education. In Nepal it approved stepped up its assistance to national programs to prevent a $50 million credit in support of the country's Education for the spread of the disease among highly vulnerable population All goals. In health the Bank provided $50 million to fund groups, youth, and the general population. It is also facilitat- essential health care services for underserved populations in ing dialogue between countries to share lessons learned and Nepal, $21.5 million to help Pakistan fight polio, $110 million effective intervention practices. BOX 2.2 RESPONDING TO THE TSUNAMI DISASTER IN THE INDIAN OCEAN The tsunami in the Indian Ocean in December 2004 was one of The Maldives received emergency support of $14 the worst natural disasters in modern times. In Sri Lanka the million (a $5.6 million IDA grant and an $8.4 million tsunami killed more than 31,000 people and destroyed almost IDA credit), and the program requires an estimated $188 100,000 homes. In parts of India the tsunami caused enormous million of additional financing. In Sri Lanka and India loss of assets along some 2,260 kilometers of coastline and sufficient resources have been mobilized to sustain the widespread loss of livelihoods, especially from fishing. In the initial phases of reconstruction and recovery.The Bank Maldives the tsunami inflicted severe damage on the entire provided emergency support of $150 million to Sri country, equal to nearly two-thirds of the annual domestic Lanka, including a $30 million IDA grant, a $45 million economic output of the country. IDA credit, and a reallocation of $75 million under The Bank, in collaboration with the Asian Development Bank, ongoing IDA-financed projects. Bank assistance approved the Japan Bank for International Cooperation, and the United for tsunami recovery in India was $528.5 million, Nations, helped to rapidly prepare assessments of damage including a $465 million emergency IDA credit.To help and reconstruction needs and provide substantial analytical reduce future losses, the Bank will continue to fund and advisory support for preparation of reconstruction and projects that improve disaster preparedness and risk recovery programs. mitigation in the region. 40 THE WORLD BANK ANNUAL REPORT 2005 TABLE 2.3 WORLD BANK LENDING TO BORROWERS IN SOUTH ASIA BYTHEME AND SECTOR | FISCAL 2000­2005 MILLIONS OF DOLLARS THEME 2000 2001 2002 2003 2004 2005 Economic Management 35.2 47.4 232.5 123.5 7.7 87.5 Environmental and Natural Resource Management 80.8 587.8 295.2 94.2 94.8 433.9 Financial and Private Sector Development 265.4 865.9 381.6 689.1 689.9 923.0 Human Development 276.2 124.8 30.2 546.9 760.6 1,041.6 Public Sector Governance 212.7 261.0 678.0 467.3 669.8 639.5 Rule of Law 56.5 36.1 59.3 12.5 2.9 10.5 Rural Development 426.1 379.5 417.2 403.7 314.1 1,132.5 Social Development, Gender, and Inclusion 261.5 240.5 414.2 197.3 642.8 265.3 Social Protection and Risk Management 168.0 118.4 164.0 184.4 98.6 337.0 Trade and Integration 29.4 398.3 70.0 197.3 52.7 63.7 Urban Development 300.7 186.8 766.2 2.6 87.8 59.0 Theme Total 2,112.4 3,246.6 3,508.4 2,918.7 3,421.6 4,993.3 SECTOR Agriculture, Fishing, and Forestry 65.0 116.1 328.1 212.6 251.9 940.8 Education 171.4 206.4 95.9 364.6 665.8 286.4 Energy and Mining 277.8 746.2 504.8 150.6 130.8 83.6 Finance 46.0 209.7 310.0 185.8 331.4 461.8 Health and Other Social Services 393.3 188.1 278.7 369.0 334.6 493.2 Industry and Trade 85.3 34.0 443.1 144.9 46.1 485.2 Information and Communication 54.6 17.7 12.4 11.5 16.9 91.9 Law and Justice and Public Administration 407.0 377.4 632.5 372.3 925.5 885.7 Transportation 590.6 1,294.3 758.1 1,067.6 444.8 1,181.0 Water, Sanitation, and Flood Protection 21.4 56.8 144.9 40.0 273.7 83.7 Sector Total 2,112.4 3,246.6 3,508.4 2,918.7 3,421.6 4,993.3 Of which IBRD 934.3 2,035.0 893.0 836.0 439.5 2,095.9 Of which IDA 1,178.1 1,211.6 2,615.4 2,082.7 2,982.1 2,897.4 Note: Fiscal 2005 includes Guarantees and Guarantee Facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 41 Roma in the Europe and Central Asia region. EUROPE AND CENTRAL ASIA The Europe and Central Asia region enjoyed another good Per capita income in the eight newest members of the year, with economic growth of 7.2 percent in 2004, European Union is 40­60 percent that of the countries they reflecting strong growth in several countries.The Russian joined, and convergence is expected to take 20­30 years. Federation grew 7.2 percent,Turkey grew 8.9 percent, and Middle-income countries such as Azerbaijan, Kazakhstan, and Ukraine grew 12.1 percent. As another mark of progress, Russia struggle with policy issues similar to those faced by the Czech Republic announced its intention to transition other resource-rich countries, including the need to ensure from being a recipient of Bank financial and technical good governance of oil revenues and reduce economic depen- assistance to being an important partner and provider of dence on extractive industries. development assistance. Although countries are in various stages of transition, Most countries in the region have put in place the basic the legacy of central planning remains. On the positive side, institutions and framework of open market economies. human development indicators in education and health are Poverty has declined significantly--40 million people moved relatively good. On the negative side, many towns are located out of poverty between 1999 and 2003--but it remains in far-flung and unviable locations, especially in Russia; state widespread in Central Asia and the South Caucasus, where bureaucracies are bloated and overextended; and serious many countries confront development challenges similar to environmental issues remain. Less than full recovery from those faced by poor countries in Africa. the recession at the onset of transition and the emergence of At the other end of the spectrum, the middle-income new challenges mean that countries in the region face an countries in the region face the same challenge as such uphill task in meeting the Millennium Development Goals, countries everywhere--convergence with rich countries. especially those related to health and the environment. EUROPE AND CENTRAL ASIA FAST FACTS Total population: 0.5 billion Population growth: 0.1% TOTAL FISCAL 2005 TOTAL FISCAL 2005 Life expectancy at birth: 68 years New Commitments Disbursements Infant mortality per 1,000 births: 29 IBRD $3,588.6 million IBRD $2,748.1 million Female youth literacy: 99% IDA $504.9 million IDA $617.4 million 2004 GNI per capita: $3,290 Number of people living with HIV/AIDS: 1.3 million Portfolio of projects under implementation as of June 30, 2005: $15.8 billion Note: Life expectancy at birth and infant mortality rate per 1,000 births are for 2003; female youth literacy is for the most recent year available from 2000 to 2002; HIV/AIDS data are from the June 2004 UNAIDS Report on the Global AIDS Epidemic; other indicators are for 2004 from the World Development Indicators Database. 42 THE WORLD BANK ANNUAL REPORT 2005 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING This section also reports on Kosovo,Serbia and Montenegro. Albania Bulgaria Kazakhstan Moldova Slovak Republic Uzbekistan Armenia Croatia Kyrgyz Republic Poland Tajikistan Azerbaijan Estonia Latvia Romania Turkey Belarus Georgia Lithuania Russian Federation Turkmenistan The Czech Republic Bosnia and Hungary Macedonia, former Serbia and Montenegro Ukraine graduated from borrower Herzegovina Yugoslav Republic of status in fiscal 2005. Particularly worrisome is the rapid spread of tuberculosis BUILDING THE CLIMATE FOR INVESTMENT and HIV/AIDS: the region has one of the fastest-growing The climate for investment is improving in the region, albeit epidemics in the world. gradually and unevenly. Doing Business in 2005 ranked The Bank's Country Assistance Strategies, tailored to Lithuania and the Slovak Republic among the top 10 meet the needs of each subregion, are organized around reformers in the world. But other countries in the region two broad themes: fostering growth and competitiveness featured among the 10 worst in the world in the number by building a climate for investment, and fostering social of procedures required to start a business. inclusion.The Bank is also addressing global issues, such as To support improvements in the investment climate, the HIV/AIDS--which goes hand in hand with youth issues in Bank is focusing on the reform of policies and the develop- Europe and Central Asia--and key environmental challenges ment of institutions to maintain macroeconomic stability, associated with biodiversity, water, carbon emissions, and promote competition and trade, improve private and public renewable energy. sector governance, reduce corruption, enhance financial intermediation, and improve physical infrastructure. A Poverty WORLD BANK ASSISTANCE Reduction Support Credit to Armenia focuses on improving Lending approved during fiscal 2005 reached $4.1 billion, competition by liberalizing trade in air and rail services and including IBRD lending and guarantees of $3.6 billion and enhancing the regulatory framework for utilities. In Poland IDA commitments of $0.5 billion.The Bank delivered 98 the First Hard Coal Mine Closure Project is helping improve pieces of economic and sector work and completed 68 techni- the efficiency of the sector by shutting down uneconomic cal assistance assignments.The Board was presented with mines and dealing with postclosure environmental issues. Country Assistance Strategies for Bosnia and Herzegovina, Nonlending activities are also supporting the investment Croatia, Moldova, and Serbia and Montenegro; Country climate.The Bank completed investment climate assessments Partnership Strategies for Kazakhstan and Poland; a Country of the Kyrgyz Republic, Lithuania,Tajikistan, and Turkey. Assistance Strategy Progress Report for Russia; and Poverty In Serbia and Montenegro, establishment of a registration Reduction Strategy Papers or updates for Albania, Armenia, agency outside of the court system, which the Bank recom- Azerbaijan, Georgia, Moldova, and Uzbekistan. mended, has reduced waiting times and procedures for starting These products and services incorporate many innovative a business.The Bank also undertook analytic work on the and cutting-edge features. Examples of innovative lending knowledge economy in Romania and cohosted the fourth instruments are the sectorwide Poland Road Maintenance Knowledge Economy Forum in Turkey. and Rehabilitation Project, which relies on country fiduciary systems; multicountry operations, such as the adaptable FOSTERING PARTICIPATION IN DEVELOPMENT program loan for the electricity community of South Eastern To foster participation in the development process, Bank opera- Europe and the umbrella technical assistance facility for tions emphasize improving access to and the quality of public the eight new members of the European Union; and the services and increasing the economic and social integration of Partial Risk Guarantee operation for Romania, which will vulnerable groups. reduce the regulatory risk of privatizing electricity. In The Azerbaijan Pilot Reconstruction Credit has helped nonlending services, the Joint Economic Research Program reconstruct transport, energy, and other infrastructure in post- with Kazakhstan is proving to be a promising model for conflict areas of the Upper Garabagh region and has financed shared analytic work in middle-income countries where 190 microprojects designed to improve the livelihoods of demand outstrips Bank resources. 160,000 beneficiaries. A follow-on project, the Azerbaijan (See also the IFC and MIGA annual reports.) Internally Displaced Persons Economic Development Support REGIONAL PERSPECTIVES 43 Project, will improve the living conditions of displaced people and enhance their economic opportunities and prospects for social integration.The Kyrgyz Rural Education Project will improve incentives for teacher performance and provide text- books and other learning materials.The Second Health Project in Uzbekistan, an expansion of the pilot reforms supported under the First Health Project, is designed to increase access to and the quality of primary health care in eight regions.The Bank has also helped to raise awareness of poverty and human development issues of the Roma population and has secured the long-term commitment of various actors to improving opportunities for them (see box 2.3). Small and medium enterprises are key to growth in the Europe and Central Asia region. BOX 2.3 LAUNCH OF THE DECADE OF ROMA INCLUSION A groundbreaking initiative to end centuries of isolation and initiative, each government will implement a national action plan discrimination against Europe's Roma population was launched for improvement that includes precise targets to be met by 2015. on February 2, 2005, when government leaders from eight coun- The initiative also provides a mechanism for annually monitoring tries in Europe and Central Asia pledged to include the Roma as the implementation of the action plans. full and equal citizens of Europe.The Open Society Institute and Before the launch of the Roma Decade, donors, including the the World Bank were the two principal sponsoring organizations of the initiative. World Bank, pledged $42 million toward the Roma Education Fund, which aims to help countries improve education outcomes Roma, once known as gypsies, are one of the largest, poorest, for the Roma. and fastest-growing minorities in Europe.The Decade of Roma Inclusion Initiative aims to improve the economic and social For more information on the World Bank's work on the Roma, status of the 7­9 million Roma in the region by improving their please visit www.worldbank.org/roma. The Web site of the education, health care, housing, and job opportunities. Under the Decade of Roma Inclusion is www.romadecade.org. 44 THE WORLD BANK ANNUAL REPORT 2005 TABLE 2.4 WORLD BANK LENDING TO BORROWERS IN EUROPE AND CENTRAL ASIA BYTHEME AND SECTOR | FISCAL 2000­2005 MILLIONS OF DOLLARS THEME 2000 2001 2002 2003 2004 2005 Economic Management 98.6 127.4 636.1 19.5 242.0 17.4 Environmental and Natural Resource Management 301.7 161.3 157.5 122.7 309.4 394.4 Financial and Private Sector Development 890.7 1,074.0 2,210.8 483.3 950.2 933.9 Human Development 278.9 51.1 138.3 550.4 297.1 539.4 Public Sector Governance 227.8 95.6 1,313.7 317.7 895.1 272.3 Rule of Law 160.2 77.4 106.6 289.8 132.3 66.8 Rural Development 213.4 137.6 309.9 194.9 117.4 161.5 Social Development, Gender, and Inclusion 43.6 65.1 188.8 55.9 33.9 246.6 Social Protection and Risk Management 530.1 381.2 363.9 288.5 305.3 668.8 Trade and Integration 143.5 138.4 32.5 130.6 182.6 424.4 Urban Development 153.6 383.9 65.4 216.7 93.6 368.0 Theme Total 3,042.2 2,693.1 5,523.6 2,670.0 3,559.1 4,093.5 SECTOR Agriculture, Fishing, and Forestry 317.8 139.0 470.4 335.4 168.6 107.0 Education 22.7 62.5 83.2 395.0 164.0 263.8 Energy and Mining 398.6 336.6 218.0 262.9 352.2 657.9 Finance 175.8 802.3 1,284.9 195.8 836.9 259.1 Health and Other Social Services 277.8 281.9 524.7 415.3 244.3 484.9 Industry and Trade 604.7 296.5 552.1 269.0 126.3 253.5 Information and Communication 151.9 8.7 9.6 1.0 7.0 10.9 Law and Justice and Public Administration 797.2 446.4 2,181.9 698.9 1,176.8 1,160.6 Transportation 207.1 118.3 67.1 30.6 321.2 557.9 Water, Sanitation, and Flood Protection 88.5 200.7 131.7 66.3 162.0 337.9 Sector Total 3,042.2 2,693.1 5,523.6 2,670.0 3,559.1 4,093.5 Of which IBRD 2,733.1 2,154.0 4,894.7 2,089.2 3,012.9 3,588.6 Of which IDA 309.1 539.0 628.9 580.8 546.2 504.9 Note: Fiscal 2005 includes Guarantees and Guarantee Facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 45 LATIN AMERICA AND THE CARIBBEAN The Latin America and the Caribbean region experienced its and most vulnerable people. Priorities include improving the strongest economic growth in 24 years in 2004, growing 6 investment climate and competitiveness in order to foster job percent, up from 2 percent in 2003.This performance reflects creation; strengthening education and creating innovative high demand for the region's exports, booming commodity systems for enhancing human capital and increasing produc- prices, ample global liquidity, and improved domestic policies, tivity; improving public sector governance and institutions; such as floating exchange rate arrangements and adjustments fostering social equity and inclusion; achieving an inclusive but in fiscal and current accounts. In line with global output and affordable welfare system; strengthening environmental institu- trade, growth in the region is expected to slow moderately to tions and promoting the effective use of natural resources; about 4.3 percent in 2005. consolidating macroeconomic and financial stability; and using The region has abundant natural resources and average fiscal resources for infrastructure investments. incomes in the middle-income range, but it is marked by high Bank lending approved for Latin America and the Caribbean inequality and entrenched poverty and exclusion. Development reached $5.2 billion in fiscal 2005, $4.9 billion in IBRD lend- challenges facing the region's 30 countries include increasing ing and $0.3 billion in IDA credits and grants.This financing investment and productivity; reducing economic volatility; was designed to support innovative solutions that integrate broadening access to services, credit, and land; and strengthen- technical knowledge with customized local approaches. ing infrastructure, institutions, and governance. During fiscal 2005 the Bank made its first development policy loans to the region.The loans support the strengthening WORLD BANK ASSISTANCE of social sectors in Bolivia, fiscal reform and housing sector World Bank support to the region aims to reduce poverty policy in Brazil, broad-based growth in El Salvador, debt relief through sustained, equitable growth and a focus on the poorest and the development of the financial sector in Honduras, and LATIN AMERICA AND THE CARIBBEAN FAST FACTS Total population: 0.5 billion Population growth: 1.4% TOTAL FISCAL 2005 TOTAL FISCAL 2005 Life expectancy at birth: 71 years New Commitments Disbursements Infant mortality per 1,000 births: 28 IBRD $4,904.4 million IBRD $3,557.6 million Female youth literacy: 95% IDA $261.3 million IDA $440.3 million 2004 GNI per capita: $3,600 Number of people living with HIV/AIDS: 2.1 million Portfolio of projects under implementation as of June 30, 2005: $19 billion Note: Life expectancy at birth and infant mortality rate per 1,000 births are for 2003; female youth literacy is for the most recent year available from 2000 to 2002; HIV/AIDS data are from the June 2004 UNAIDS Report on the Global AIDS Epidemic; other indicators are for 2004 from the World Development Indicators Database. 46 THE WORLD BANK ANNUAL REPORT 2005 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING Antigua and Barbuda Colombia Grenada Mexico St. Lucia Venezuela, República Argentina Costa Rica Guatemala Nicaragua Bolivariana de St.Vincent and the Belize Dominica Guyana Panama Grenadines Bolivia Dominican Republic Haiti Paraguay Suriname Brazil Ecuador Honduras Peru Trinidad and Tobago Chile El Salvador Jamaica St. Kitts and Nevis Uruguay social programs in Uruguay. New results-focused Country American Free Trade Agreement), the Central America Free Assistance Strategies were prepared for the Dominican Trade Agreement, and innovation. Republic, El Salvador, Guatemala, Jamaica, and Uruguay. In Haiti the Bank supported development of a needs assess- FOSTERING PARTICIPATION IN DEVELOPMENT ment (the Interim Cooperation Framework), endorsed a The Bank is promoting efforts to reduce poverty, improve Transitional Support Strategy, and provided a first package of poor people's access to basic services, and increase the IDA credits and grants totaling $75 million. participation of excluded groups by funding programs in The Bank's analytic and advisory support to the region health, education, environmental protection, social inclusion, in fiscal 2005 included a flagship study of the rural sector and social protection. In Mexico, northern Peru, and the (see box 2.4) and analytic work on building the climate for Southern Cone countries, Development Marketplaces have investment and fostering participation in development. encouraged innovation and have promoted young people's (See also the IFC and MIGA annual reports.) participation in development. BUILDING THE CLIMATE FOR INVESTMENT Across the region the Bank is assisting countries in their efforts to reduce the red tape that hinders private sector development and to address the poor logistics that make products costly and businesses unprofitable. Major financing to the region in fiscal 2005 included a $658 million loan to Brazil for programmatic fiscal reform and social security reform; a $250 million loan to Mexico to support innovation for competitiveness; a $200 million loan to Argentina for sustainable investment in infrastructure; a $200 million loan to Colombia for labor reform and social structural adjust- ment; a $100 million loan to Peru for improving decen- tralization and competitiveness, along with a $200 million guarantee facility; and a $150 million loan to the Dominican Republic for strengthening the power sector. To help identify priorities for public expenditure reform, the Bank carried out public expenditure reviews of Guatemala, Mexico, Paraguay, St. Lucia, St.Vincent and the Grenadines, and Uruguay in fiscal 2005. It completed investment climate surveys for Brazil, Ecuador, El Salvador, and Guatemala and launched surveys for Costa Rica and Jamaica.The results of the survey for El Salvador were used to design the first development policy loan for the country and provide benchmarks for monitoring and evaluating the loan.The Bank conducted other analytic work on growth and competitiveness, trade reform and labor market risk, labor competitiveness, migration (in the context of the North REGIONAL PERSPECTIVES 47 Bank lending in fiscal 2005 included $503 million for and poverty, inequality, and economic growth in Argentina. environmental sustainability and $503 million for housing Regional studies were conducted on social security, service reform in Brazil, $300 million for basic education in Mexico, delivery reform, urban poverty, health care reform, education $260 million for disaster vulnerability reduction in Colombia, reform, and indigenous people, poverty, and human development. $100 million for social reform in Peru, and $40 million for To increase access to information about the Bank's activi- land administration in El Salvador. ties and foster informed debate on development issues, the The Bank supported countries' national antipoverty plans Bank extended its public information services to 12 Latin by endorsing Poverty Reduction Strategy Paper Progress American and Caribbean countries. It also contributed to Reports for Guyana and Honduras.The Bank's analytic and knowledge sharing and capacity building through the Global advisory support included poverty assessments for Bolivia, the Development Learning Network, which offers programs on Dominican Republic, Mexico, and Peru, and studies of youth health, small and medium enterprises, rural development, and development in Brazil, social protection in Central America, education (see chapter 1). BOX 2.4 HOW IMPORTANT ARE RURAL ACTIVITIES TO DEVELOPMENT? According to a new Bank report, Beyond the City:The Rural consumers, net importers will need to reduce their own high tariffs Contribution to Development, the economic contribution of the on agricultural products. region's rural activities to national development is twice as large The study concludes that countries need to put in place programs as officially reported.This is because these activities have forward that support the restructuring of small domestic producers in linkages to other economic activities and their contribution to sectors that are unable to compete once tariffs are reduced. At the exports is high.The report also finds that the region's rural popu- same time, to sustain growth and reduce poverty, rural public expen- lation is twice the official figure, indicating that the scale of rural diture needs to be diverted away from producer subsidies toward problems has been underestimated.The implication: the countries investments in public goods, including health and social protection, of Latin America and the Caribbean need to make larger--and rural education, rural infrastructure, research and development, better--investments in rural communities. environmental protection, and targeted antipoverty programs. On the trade side, the report finds, countries throughout the Poverty in rural areas, the report finds, is associated not only with region are likely to benefit from increased market access once the agriculture but also with specific regions, such as southern Mexico, industrial nations reduce their subsidies to agricultural produc- northeastern Brazil, and Colombia's Caribbean coast. Moreover, ers. But the benefits will go mainly to net agricultural exporters, nearly half of rural income in the region comes from off-farm especially in the Southern Cone, while food-importing nations in activities.These findings highlight the need for better integration the region will see prices rise.To avoid price increases for poor of sectoral and regional policies. 48 THE WORLD BANK ANNUAL REPORT 2005 TABLE 2.5 WORLD BANK LENDINGTO BORROWERS IN LATIN AMERICA ANDTHE CARIBBEAN BYTHEME AND SECTOR | FISCAL 2000­2005 MILLIONS OF DOLLARS THEME 2000 2001 2002 2003 2004 2005 Economic Management 587.6 570.1 391.0 567.2 111.2 310.4 Environmental and Natural Resource Management 270.8 68.8 187.4 240.3 159.1 841.2 Financial and Private Sector Development 1,056.1 985.4 965.4 819.8 912.4 729.6 Human Development 157.7 471.2 560.4 1,171.7 1,046.7 469.8 Public Sector Governance 519.9 1,099.7 1,182.8 798.6 672.0 506.2 Rule of Law 111.7 202.2 15.5 138.8 270.9 147.9 Rural Development 103.0 580.8 168.3 415.9 249.6 331.7 Social Development, Gender, and Inclusion 141.5 371.7 248.9 123.1 268.9 187.9 Social Protection and Risk Management 901.2 530.0 310.4 1,050.3 926.9 950.4 Trade and Integration 160.7 218.3 83.9 59.6 364.6 233.4 Urban Development 53.3 202.0 251.9 435.2 337.6 457.1 Theme Total 4,063.5 5,300.1 4,365.8 5,820.5 5,319.8 5,165.7 SECTOR Agriculture, Fishing, and Forestry 104.1 72.3 85.0 58.4 379.6 233.4 Education 62.8 529.1 560.4 785.5 218.3 680.0 Energy and Mining 79.3 107.6 445.6 96.2 50.5 212.6 Finance 1,191.8 946.7 593.5 973.0 405.1 530.0 Health and Other Social Services 360.2 904.7 660.5 1,574.1 1,558.9 443.4 Industry and Trade 165.3 38.3 51.4 183.4 428.0 199.9 Information and Communication 28.7 97.8 16.5 52.4 14.0 44.7 Law and Justice and Public Administration 1,791.0 1,726.7 1,440.0 1,564.9 1,521.3 1,776.0 Transportation 11.6 650.3 463.1 146.4 675.7 556.4 Water, Sanitation, and Flood Protection 268.7 226.6 49.8 386.2 68.4 489.5 Sector Total 4,063.5 5,300.1 4,365.8 5,820.5 5,319.8 5,165.7 Of which IBRD 3,898.1 4,806.7 4,188.1 5,667.8 4,981.6 4,904.4 Of which IDA 165.4 493.4 177.8 152.7 338.2 261.3 Note: Fiscal 2005 includes Guarantees and Guarantee Facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 49 MIDDLE EAST AND NORTH AFRICA The Middle East and North Africa region grew an average of compete in the global economy, ensuring equal opportunities 4.7 percent a year from 2002 through 2004, a marked increase for men and women (see box 2.5), and managing and conserv- from the 3.7 percent average of the 1990s.This strong eco- ing scarce water resources. nomic performance was accompanied by job creation that In support of these priorities, the Bank approved lending reduced the unemployment rate from 15 percent in 2000 to of $1.3 billion in fiscal 2005.The bulk of this assistance, 13.4 percent in 2004. $1.2 billion, was channeled through IBRD financing to This recent economic upturn notwithstanding, the region middle-income countries; $0.1 billion was provided as IDA remains highly vulnerable to fluctuating global energy prices. concessional financing to low-income countries. Providing jobs for today's unemployed and tomorrow's job-seek- The Bank also delivered more than 60 pieces of economic ers will require creating 5 million new jobs a year for the next and sector work in fiscal 2005.This work tackled a variety 20 years.To do so, the region will need to develop a stronger of issues, including pensions, education, public spending, and private sector, diversify its markets, and increase global trade. labor markets. In addition, the Bank produced a regional report, Middle East and North Africa Region 2005 Economic WORLD BANK ASSISTANCE Developments and Prospects, which examines prospects for Recognition of the urgent need for jobs underpins the Bank's growth and measures progress toward structural reforms. strategy in the region.The regional strategy focuses on five For countries in the region that are not eligible for borrow- challenges: strengthening governance and public sector manage- ing, the Bank continues to provide advisory services under ment, promoting private sector development and employment, the Reimbursable Technical Cooperation Program. In fiscal enhancing the quality of education so the region can better 2005, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab MIDDLE EAST AND NORTH AFRICA FAST FACTS Total population: 0.3 billion Population growth: 1.7% TOTAL FISCAL 2005 TOTAL FISCAL 2005 Life expectancy at birth: 68 years New Commitments Disbursements Infant mortality per 1,000 births: 45 IBRD $1,212.1 million IBRD $487.8 million Female youth literacy: 80% IDA $71.5 million IDA $178.3 million 2004 GNI per capita: $2,000 Number of people living with HIV/AIDS: 0.1 million Portfolio of projects under implementation as of June 30, 2005: $5.9 billion Note: Life expectancy at birth and infant mortality rate per 1,000 births are for 2003; female youth literacy is for the most recent year available from 2000 to 2002; HIV/AIDS data are from the June 2004 UNAIDS Report on the Global AIDS Epidemic; other indicators are for 2004 from the World Development Indicators Database. 50 THE WORLD BANK ANNUAL REPORT 2005 COUNTRIES ELIGIBLE FOR WORLD BANK BORROWING This section also reports on the West Bank and Gaza. Algeria Egypt, Arab Republic of Iraq Lebanon Syrian Arab Republic Yemen, Republic of Djibouti Iran, Islamic Republic of Jordan Morocco Tunisia Emirates received advice on policy reforms in areas such as the FOSTERING PARTICIPATION IN DEVELOPMENT investment climate, education, and human resources planning. The region has made remarkable progress in increasing access In conflict-affected areas, the Bank administered trust funds to education. But it continues to face challenges in developing on behalf of international donors to address emergency needs a high-quality education system that can respond to the needs and strengthen local institutions. Nine trust fund operations of the future job market. were launched in Iraq to restore essential infrastructure and A Bank-supported education reform program in Morocco services, and extensive training was provided to help Iraqi seeks to increase access to basic education for most school- ministries take ownership of reconstruction projects. In the age children by 2008, improve learning, and reduce dropout West Bank and Gaza, the Bank helped develop an economic and repetition rates. In Egypt a Bank loan is helping the plan that outlines measures the Palestinian Authority and government provide good-quality early education, particularly the government of Israel need to take in order to rebuild the for disadvantaged children. In Iraq, where nearly one-third of Palestinian economy as part of the disengagement process. schools have to hold double or triple sessions daily, the Bank (See also the IFC and MIGA annual reports.) is working through a multidonor trust fund to finance the construction of new buildings for more than 100 schools and BUILDINGTHE CLIMATE FOR INVESTMENT urgent repairs to 140 others. In fiscal 2005 the Bank conducted investment climate assessments, which identify key barriers to doing business, for the Arab Republic of Egypt, Iraq, Morocco, Oman, the Syrian Arab Republic,Tunisia, the United Arab Emirates, and the Republic of Yemen. It also conducted analyses of trade logistics in Syria and the Republic of Yemen and funded an export development project in Tunisia. Efforts to improve the investment climate go beyond reducing business costs and ensuring enforcement of contracts. The Bank is working to foster good corporate governance in Egypt. In Iraq it is supporting capacity building to manage the transition to a market-based economy. Improving infrastructure services requires providing a better investment climate for service providers.The Bank is helping governments to better manage their public resources through competition and to improve regulation to facilitate private participation. Egypt is leading the way in this area, with the Airports Development Project. In Algeria, Iraq, and Tunisia, the Bank is supporting the modernization of informa- tion infrastructure services through private investment. In countries struck by natural disaster, restoring basic infrastructure is critical to reviving the local economy. In response to the 2004 earthquake in Bam, Iran, the Bank is supporting the reconstruction of telecommunication and transport infrastructure. REGIONAL PERSPECTIVES 51 In the Republic of Yemen, where less than half the adult establish Public Information Centers in Algeria, Egypt, population is literate, the Bank is assisting national efforts Lebanon, Morocco, the West Bank and Gaza, and the Republic to meet the Millennium Development Goals of universal of Yemen.These centers provide people with access to informa- primary education and gender equality by 2015. It is support- tion, including the Internet. ing reforms designed to create an education system in which As part of an ongoing effort to engage with civil society vulnerable groups--including girls, children with special needs, in the region, the Bank launched Development Marketplace and rural children--will benefit from investments in education. competitions in Lebanon and the Republic of Yemen. Hundreds The Social Fund in Yemen is involving the local population of proposals were submitted for innovative grassroots projects in community-based projects. More than 9 million Yemenis to fight poverty.Winners were given seed money to transform benefited from some 400 projects in education, health, water development ideas into projects. and sanitation, and roads, which created millions of temporary In Egypt and Lebanon, the Bank held consultations employment opportunities. with civil society on Country Assistance Strategies, engaging Access to information is key to promoting participation stakeholders in a dialogue on the development challenges and ensuring transparency and accountability. In partnership they face and how best to address them. with universities and local organizations, the Bank helped BOX 2.5 INCREASING BUSINESS OPPORTUNITIES FOR WOMEN Women and girls have made great strides in education in most Preliminary findings from Morocco, Oman, and Syria suggest that countries in the region. Gender gaps in primary and secondary women and men face similar constraints related to land, electric- education are likely to be eliminated as early as 2005, and nearly ity, legal systems, and economic uncertainty. But corruption as many women are graduating from universities as men.Women affects women more than men, and women face network-related lag behind in labor and political participation, however, due to barriers that make it difficult for them to enter business circles social norms and traditions. High unemployment and discrimina- dominated by men. Focus groups conducted with owners of tion in the workplace have led women to become entrepreneurs, microenterprises and small businesses suggest that women have investors, and producers. But they face significant barriers in the less access to capital, market knowledge, and the skills needed to business world. succeed. As a result, women-owned businesses are generally less formal, smaller, and less profitable than those owned by men. To support the creation of more work opportunities for women, the Bank is adapting its investment climate assessments to better The Bank, in collaboration with IFC's Gender-Entrepreneurship- respond to the needs of women entrepreneurs.This pilot initiative Markets Program, is looking to use these findings to identify how examines gender discrepancies in access to financing, networks, gender-related business constraints can be overcome through and markets. technical assistance and policy reform. A pilot project is now being carried out in Egypt and the Republic of Yemen. 52 THE WORLD BANK ANNUAL REPORT 2005 TABLE 2.6 WORLD BANK LENDING TO BORROWERS IN MIDDLE EAST AND NORTH AFRICA BYTHEME AND SECTOR | FISCAL 2000­2005 MILLIONS OF DOLLARS THEME 2000 2001 2002 2003 2004 2005 Economic Management 0.0 11.9 5.0 0.0 0.0 45.8 Environmental and Natural Resource Management 123.3 27.5 21.7 186.0 113.8 160.2 Financial and Private Sector Development 61.8 78.8 204.1 48.3 259.3 166.6 Human Development 187.9 35.7 61.9 140.9 192.1 95.4 Public Sector Governance 130.6 102.6 93.3 106.6 19.6 166.0 Rule of Law 9.3 56.5 49.1 48.0 1.7 1.8 Rural Development 89.2 86.4 14.5 100.6 65.1 155.3 Social Development, Gender, and Inclusion 71.6 52.5 13.4 63.1 70.7 123.0 Social Protection and Risk Management 100.0 5.6 11.0 96.1 31.6 98.5 Trade and Integration 3.0 3.4 24.8 3.6 158.3 0.0 Urban Development 143.5 46.7 55.8 262.7 178.7 271.1 Theme Total 920.0 507.5 554.5 1,056.0 1,091.0 1,283.6 SECTOR Agriculture, Fishing, and Forestry 120.6 46.5 2.9 196.7 27.2 229.2 Education 197.1 72.3 38.0 154.3 154.9 124.0 Energy and Mining 0.0 0.0 1.3 0.0 0.0 0.0 Finance 5.3 0.0 110.5 1.9 20.8 142.5 Health and Other Social Services 158.9 39.3 41.7 124.2 52.0 0.3 Industry and Trade 47.9 27.0 71.7 74.3 23.4 277.9 Information and Communication 1.3 59.2 69.9 2.3 0.0 18.5 Law and Justice and Public Administration 108.9 161.5 74.7 213.6 93.6 232.9 Transportation 59.6 82.8 70.9 107.9 409.6 29.0 Water, Sanitation, and Flood Protection 220.5 19.0 73.1 180.9 309.5 229.3 Sector Total 920.0 507.5 554.5 1,056.0 1,091.0 1,283.6 Of which IBRD 760.2 355.2 451.8 855.6 946.0 1,212.1 Of which IDA 159.8 152.3 102.7 200.4 145.0 71.5 Note: Fiscal 2005 includes Guarantees and Guarantee Facilities. Numbers may not add to totals due to rounding. REGIONAL PERSPECTIVES 53 3 SUMMARY OF FISCALYEAR ACTIVITIES SHARING KNOWLEDGE In fiscal 2005 the Bank hosted its fifth annual Country The Bank's store of development knowledge has always Analytic Work workshop, attended by 40 representatives from been an important element of its assistance to client coun- more than 20 development agencies and governments.These tries. Knowledge activities range from carrying out country workshops aim to avoid duplication of analytic work, reduce research, to developing analytic and conceptual frameworks transaction costs for clients, and establish common standards for country assistance, to capacity building that enables client for key sector-specific analytic products. More than 30 donor countries to build the skills necessary for development. agencies participate in knowledge sharing through the Country Analytic Work Web site, www.countryanalyticwork.net. Research The Bank's Quality Assurance Group conducted assess- The World Development Report 2006: Equity and Development ments of the Bank's country analytic and advisory services for (to be published in September 2005) examines the relation- 17 countries in fiscal 2005.Two of these were pilot country ship between equity and the development process.The report program assessments that looked at the lending and portfolio maintains that increasing equality of opportunity and prevent- performance over the entire Country Assistance Strategy ing extreme deprivation are tools for increasing prosperity, cycle.These assessments provided greater insight into syner- and that, in the long run, equity and efficiency are comple- gies among tasks that could not be captured by task-by-task mentary. (See www.worldbank.org/wdr2006 and http://econ assessments alone. Building on earlier assessments for nine .worldbank.org.) countries conducted in fiscal 2002 and 2003, this year's Economic Growth in the 1990s: Learning from a Decade assessments focused on new directions such as the Bank's of Reforms, published during fiscal 2005, is a flagship study results initiative, programmatic lending, multisector teams, on development lessons learned from the 1990s.The study and capacity building.The Bank has conducted 36 assessments reviews the impact on growth of the main policy and institu- of its country analytic and advisory services to date. tional reforms introduced in the 1990s; it presents a broad perspective on the events, country experiences, academic Sector Strategies research, and controversies of the decade; and it reflects on The Bank produced two important sector strategy papers how the lessons from the 1990s have altered thinking about in fiscal 2005."Empowering People by Transforming economic growth. Institutions: Social Development in World Bank Operations" is the Bank's action plan for social development (see chap- Analytic and Advisory Services ter 1)."Achieving the MDGs,Broadening Our Perspective, The Bank augments its lending activities by creating, sharing, Maximizing Our Effectiveness" suggests how a client country and applying knowledge. Most of its analytic and advisory can attain the Education for All goals and the Millennium services consist of economic and sector work and nonlending Development Goals (MDGs) for education, thus strengthening technical assistance. its education sector as the basis for a dynamic knowledge The Bank delivered 694 economic and sector work economy.The Bank also produced the first Sector Strategy products and 351 technical assistance products in fiscal Implementation Update, an integrated assessment of all Bank 2005. Financial and private sector development and public sector and thematic strategies. sector governance were the leading themes for both economic and sector work and technical assistance. Analytic activities Capacity Development are being better integrated into overall country assistance The World Bank Institute (WBI) provides client countries programs, with increasing emphasis on country ownership, with a capacity development program comprising techni- participatory processes, capacity building, and partnerships. cal assistance, thematic learning programs, cabinet-level SUMMARY OF FISCAL YEAR ACTIVITIES 55 retreats, and other leadership development programs. It uses knowledge economy, governance, and other diagnostic tools for assessing critical country capacities in its economic and sector work. Since the Institute's inception in 1955 more than 500,000 people have participated in WBI activities. In fiscal 2005 nearly 110,000 clients participated in more than 900 WBI activities, many through distance and e-learn- ing. (See box 1.2,"The World in One Room," in chapter 1.) Since 2002 WBI has been transforming itself from a training institute into a more broadly based provider of services, focusing its attention on a group of 36 countries representing all regions. During the year,WBI contributed substantively to 11 Country Assistance Strategies. WBI's global Knowledge for Development Program works closely with Bank country teams to assess the preparedness of a country or region to compete in the global knowledge economy based on its Knowledge Assessment Methodology diagnostic tool. (See www.worldbank.org/kam.) The program's most recent book, India and the Knowledge Economy: Leveraging Strengths and Opportunities, makes specific recommendations for economic and institutional reforms. A WBI "knowledge hub" in Marseilles, France, serves as the focal point for program development in the Middle East and North Africa.WBI staff are also placed in country offices. In response to demand from the Bank's South Asia region,WBI is creating a regional unit in New Delhi. (See www.worldbank.org/wbi.) WBI's other global program, focused on governance and anticorruption, is described in chapter 1. WORLD BANK LENDING The World Bank comprises cooperative institutions that mobi- lize financing from member shareholder equity by borrowing from international capital markets (for IBRD) and by means of outright contributions from the richer member countries (for IDA). It channels these resources to benefit poor people in borrowing countries. Figures 3.1­3.3 and table 3.1 provide a summary of this year's IBRD-IDA lending. Country lending reflects the Bank's focus on achieving the MDGs. It is tailored to individual country needs, with lending instruments that are becoming increasingly flexible. The Country Assistance Strategy (CAS) guides World Bank Group activities within borrowing member countries. Starting from a country's vision of its development goals, the CAS is prepared in consultation with the government, civil society organizations, development partners, and other stake- holders. It assesses the country's development situation and suggests a program of support tailored to meet the country's needs.The objective is to identify areas in which Bank Group 56 THE WORLD BANK ANNUAL REPORT 2005 TABLE 3.1 WORLD BANK LENDING BY THEME AND SECTOR | FISCAL 2000­2005 MILLIONS OF DOLLARS THEME 2000 2001 2002a 2003 2004 2005 Economic Management 799.6 895.3 1,408.0 777.8 428.6 594.6 Environmental and Natural Resource Management 1,829.4 1,354.6 924.0 1,102.6 1,304.6 2,493.8 Financial and Private Sector Development 3,368.4 3,940.9 5,055.4 2,882.9 4,176.6 3,862.0 Human Development 1,190.3 1,134.7 1,756.1 3,374.0 3,079.5 2,951.0 Public Sector Governance 2,142.5 2,053.7 4,247.2 2,464.1 3,373.9 2,636.4 Rule of Law 373.6 410.0 273.2 530.9 503.4 303.8 Rural Development 1,413.7 1,822.3 1,600.0 1,910.9 1,507.8 2,802.2 Social Development, Gender, and Inclusion 800.8 1,469.7 1,385.7 1,003.1 1,557.8 1,285.8 Social Protection and Risk Management 1,895.0 1,651.0 1,086.4 2,324.5 1,577.0 2,437.6 Trade and Integration 426.4 1,059.9 300.9 566.3 1,212.7 1,079.9 Urban Development 1,036.6 1,458.6 1,482.4 1,576.3 1,358.1 1,860.0 Theme Total 15,276.2 17,250.6 19,519.4 18,513.2 20,079.9 22,307.0 SECTOR Agriculture, Fishing, and Forestry 837.5 695.5 1,247.9 1,213.2 1,386.1 1,933.6 Education 728.1 1,094.7 1,384.6 2,348.7 1,684.5 1,951.1 Energy and Mining 1,572.4 1,530.7 1,974.6 1,088.4 966.5 1,822.7 Finance 1,571.6 2,246.3 2,710.8 1,446.3 1,808.9 1,675.1 Health and Other Social Services 1,491.7 2,521.2 2,366.1 3,442.6 2,997.1 2,216.4 Industry and Trade 1,036.7 718.3 1,394.5 796.7 797.9 1,629.4 Information and Communication 273.8 216.9 153.2 115.3 90.9 190.9 Law and Justice and Public Administration 4,534.6 3,850.2 5,351.2 3,956.5 4,978.6 5,569.3 Transportation 1,717.2 3,105.2 2,390.5 2,727.3 3,777.8 3,138.2 Water, Sanitation, and Flood Protection 1,512.6 1,271.7 546.0 1,378.3 1,591.6 2,180.2 Sector Total 15,276.2 17,250.6 19,519.4 18,513.2 20,079.9 22,307.0 Of which IBRD 10,918.6 10,487.0 11,451.8 11,230.7 11,045.4 13,611.0 Of which IDA 4,357.6 6,763.6 8,067.6 7,282.5 9,034.4 8,696.1 Note: Fiscal 2005 includes Guarantees and Guarantee Facilities. Numbers may not add to totals due to rounding. a. Due to a recoding of a Lao People's Democratic Republic project there is a discrepancy between these figures and the figures in the 2002 Annual Report (table 2.2).This discrepancy of $2.2 million shows up in the commitment amounts in fiscal 2002 for Social Protection and Risk Management and Rural Development (with the two themes showing $2.2 million higher and $2.2 million lower respectively). SUMMARY OF FISCAL YEAR ACTIVITIES 57 support can best assist the country's own efforts to achieve The Role of IDA sustainable development and reduce poverty. IDA is the largest source of concessional financial assistance During fiscal 2005 the Bank prepared 36 Country for the world's poorest countries. In fiscal 2005 countries Assistance Strategies and CAS Progress Reports, including with annual per capita income of up to $895 were eligible for 22 for IDA-eligible borrowers and blend-eligible borrowers IDA assistance. IDA also supports some countries, including and 14 for IBRD-eligible borrowers. Fourteen of these were several small island economies, that are above the income prepared jointly with IFC.The Bank also prepared eight cutoff but lack the creditworthiness needed to borrow from Interim Strategy Notes, which are drafted for countries that IBRD.The amount of IDA resources countries receive depends are not yet ready for a full CAS. on the quality of their policies to promote growth and reduce The results-based CAS is now being adopted for all full poverty, which are assessed annually. Country Assistance Strategies. Under this approach, expected IDA recipient countries face complex challenges in meeting links between the Bank's interventions and a country's long- the MDGs. Policy priorities include promoting growth and term development goals are presented, in matrix format, and reducing poverty; enhancing public sector governance and indicators of progress that can be tracked throughout CAS transparency; helping countries recover from conflicts, crises, implementation are included.The approach is expected to and disasters; developing infrastructure; improving the quality improve the development effectiveness of the Bank's country of basic education and poor people's access to it; strengthen- strategies. (See www.worldbank.org/cas.) ing the fight against HIV/AIDS and other communicable diseases; and building a healthy investment climate as a LOW-INCOME COUNTRIES prerequisite for private sector investment. (See chapter 1.) The Bank's mission of poverty reduction is vital in low-income Traditionally, IDA provided assistance in the form of highly countries, where the incidence of poverty is the highest, the concessional credits. Since fiscal 2003 it has expanded the institutional constraints are most severe, the investment use of grants, which will be used to finance projects in the climate may not be conducive to sustainable growth, and most debt-vulnerable IDA countries beginning in fiscal 2006. access to resources is most limited. Bank strategy for attack- (See IDA at www.worldbank.org.) ing poverty in low-income countries is based on the Poverty Reduction Strategy Paper (PRSP) approach, introduced at the IDA Commitments end of 1999. PRSPs are country-authored, results-oriented, IDA commitments in fiscal 2005 reached $8.7 billion for 160 comprehensive road maps based on broad country consulta- operations, consisting of $6.7 billion in credits, $2 billion in tion with internal and external partners and stakeholders.The grants, and $0.1 billion in guarantees.This is slightly below PRSP identifies a country's macroeconomic, structural, and last year's record high. social policies and serves as the framework for cross-sectoral Africa received the largest commitment of IDA resources programs that promote growth and reduce poverty. It acts as with $3.9 billion, constituting 45 percent of total IDA commit- the basis for development aid, including IDA credits. ments. South Asia and East Asia and Pacific followed with During fiscal 2005 the Bank's Executive Directors $2.9 billion and $1.1 billion, respectively. Fiscal 2005 marked considered eight full PRSPs, including one fully revised second the last year of the IDA13 replenishment, and the limits on PRSP, and two interim PRSPs. Forty-seven countries now IDA13 resources had an impact on Africa figures in particular. have full PRSPs. In addition, 20 countries provided annual Among countries, India,Vietnam, Bangladesh, Pakistan, and progress reports on their poverty reduction strategies. Jointly Ethiopia represented the largest single recipients. with the International Monetary Fund, the Bank reviewed the In fiscal 2005 about 21 percent of total IDA financing poverty reduction strategy process to consider progress and was provided in the form of grants to the following clients challenges.The review assessed the experiences of countries, and projects: debt-vulnerable poorest countries, $897 million; donors, and other stakeholders, including civil society organi- postconflict countries, $463 million; poorest countries, $316 zations; identified lessons learned from those experiences; and million;HIV/AIDS projects, $133 million; and natural disaster made recommendations for enhancing the process. reconstruction projects, $49 million. PRSP-based IDA assistance to low-income countries Public administration, including law and justice, was the includes Poverty Reduction Support Credits, which support leading sector receiving IDA support, with $2.2 billion, or 26 country-owned poverty reduction priorities as reflected in percent of the total. Significant support was also provided government budgets. In fiscal 2005 the Executive Directors to the health and social services and transportation sectors, of the World Bank approved 17 credits in 17 countries. representing $1.3 billion and $1.1 billion, respectively. 58 THE WORLD BANK ANNUAL REPORT 2005 The two most prominent themes were human development and rural development, accounting for 19 and 17 percent of IDA commitments, respectively. Major attention was also paid to financial and private sector development (16 percent), public sector governance (16 percent), and social protection and risk management (8 percent). Figures 3.4, 3.5, and 3.6 show IDA commitments by region, theme, and sector. IDA Resources IDA is financed by its own resources and by donor govern- ments. Every three years donor governments and representa- tives of borrower countries meet to discuss IDA's policies and priorities and to agree on the amount of new resources required to fund IDA's lending program. Historically, the major industrial nations have been the largest contributors to IDA. Donor nations also include developing countries and transition economies--some of them current IBRD borrowers and former IDA borrowers. Negotiations for the 14th Replenishment of IDA (IDA14) concluded in February 2005.The IDA14 agreement, which governs the use of IDA resources for fiscal years 2006-8, provides 24.2 billion in special drawing rights (SDRs)(about $35.3 billion).This amount includes SDR14.1 billion (about $20.7 billion) in new donor contributions; SDR8.7 billion (about $12.7 billion) in internal resources, including repay- ments of principal from past credits and investment income; and SDR1.1 billion (about $1.5 billion) in IBRD net income transfers, subject to approval by IDA's Board of Governors. Donor countries made firm financial commitments to the replenishment, but some are still exploring the possibility of increasing pledges to reach the 30 percent target increase in commitment authority supported by IDA donors. (See figure 3.7 for the sources of IDA funding, and figure 3.8 for IDA's impact on social sector efforts.) Low-Income Countries under Stress Effective engagement with low-income countries under stress (LICUS) is essential for long-term development and global security.Work continued this year on increasing the effective- ness of aid, with the Bank providing close oversight of progress in the 25 most fragile states. Heightened operational readi- ness and close partnerships with other donors allowed fast and flexible support in postconflict countries such as Haiti, Liberia, and Sudan.To improve links between security and development, the Bank and the United Nations Development Group developed the Transitional Results Matrix, a planning tool that helps countries prioritize and enhance the coherence of international support across political, security, economic, development, and humanitarian arenas. SUMMARY OF FISCAL YEAR ACTIVITIES 59 Bank research demonstrated the high costs fragile states impose on their neighbors and the inequity of aid allocations between "aid darlings" and "aid orphans."This led to an agreement for the Development Assistance Committee of the Organisation for Economic Co-operation and Development to develop a watching brief system for these countries.The Bank also cosponsored a senior-level forum,"Development Effectiveness in Fragile States," which helped develop common principles for good international engagement in these countries. The Bank implemented several institutional reforms to improve its response in LICUS.The Country Policy and Institutional Assessment rating system was amended to recognize performance improvements at the bottom of the spectrum. Aggregate budgets for analytic work were main- tained, and the LICUSTrust Fund committed $20 million to support reengagement in the most fragile countries in nonaccrual with the Bank. (See www.worldbank.org/licus.) Debt Relief and Debt Sustainability The Bank continued to provide debt relief to the world's poor- est and most heavily indebted countries in fiscal 2005. It also worked to improve debt sustainability in an effort to help these countries meet the MDGs. Under the Heavily Indebted Poor Countries (HIPC) Initiative (www.worldbank.org/debt), 27 countries are now receiving debt relief that is expected to total more than $54 billion over time. Eighteen countries have reached the "completion point," where debt relief becomes irrevocable. In fiscal 2005 the boards of the Bank and the International Monetary Fund voted to extend the HIPC Initiative through December 31, 2006. Unlike previous extensions, this one applies only to countries that satisfied HIPC income and indebtedness criteria as of the end of 2004. The debt relief program has significantly reduced debt stock in HIPCs (see figure 3.9) and has allowed poverty-reducing spending in those countries to rise (figure 3.10). Together with the International Monetary Fund, the Bank has developed a framework for assessing debt sustainability in low-income countries that will guide lending decisions in a way that balances a country's need for funds with its ability to service debt, and in a manner tailored to the country's circumstances.The framework reflects feedback from exten- sive consultations with government officials, multilateral and bilateral donors, academics, and civil society organizations. MIDDLE-INCOME COUNTRIES Middle-income countries continue to face substantial develop- ment challenges: achieving sustained growth that provides 60 THE WORLD BANK ANNUAL REPORT 2005 productive employment; reducing poverty and inequality; reducing volatility, particularly in their access to private financial markets; and strengthening the institutional and governance structures that underpin viable market-based economies.The Bank is uniquely placed to help these countries craft institutional reforms, attract infrastructure investment across the public-private spectrum, improve social service delivery, and cope with volatility. To support the development efforts of middle-income countries, the Bank began implementing an action plan in fiscal 2005 designed to strengthen the ability of its staff to respond to these countries' borrowing needs. Initiatives include piloting the use of countries' own environmental and social safeguards and fiduciary systems, where applicable; streamlining policy conditionality; and making greater use of the flexibility of Country Assistance Strategies to customize support to country circumstances, respond quickly to emerg- ing opportunities, and realign investment lending instruments and disbursement mechanisms with the evolving needs of clients.The plan leverages Bank resources and skills to provide timely, relevant, and high-quality knowledge services that draw on Bank Group synergies and partnerships with bilateral and multilateral agencies. The Role of IBRD IBRD is a AAA-rated financial institution--with some unusual characteristics. Its shareholders are sovereign governments, each of which has a voice in setting its policies and many of which are eligible to borrow from it. IBRD's main goal is to reduce poverty by promoting sustainable economic development in middle-income and creditworthy low-income borrowing countries. It provides financing (loans, guarantees, and related risk management tools) and expertise in development-related technical disciplines. It helps clients gain access to capital and financial risk management tools in larger volumes, on better terms, at longer maturities, and in a more sustainable manner than they could receive from other sources. Unlike commercial banks, IBRD is driven by development impact rather than profit maximization. Eligibility to Borrow from IBRD In fiscal 2005 countries with a per capita income of less than $5,295 that were not IDA-only borrowers were eligible to borrow from IBRD. Countries with higher per capita incomes were able to borrow from IBRD under special circumstances or as part of a graduation strategy.The amount IBRD is willing to lend eligible countries depends on their creditworthiness; some countries with poor creditworthiness may not have SUMMARY OF FISCAL YEAR ACTIVITIES 61 access to IBRD resources. Some countries that are eligible for IDA lending as a result of their low per capita incomes are also able to borrow from IBRD. IBRD loans outstanding to any individual borrowing country may not exceed $13.5 billion. IBRD Lending At $13.6 billion for 118 operations, new loans, guarantees, and guarantee facilities by IBRD in fiscal 2005 exceeded the previous year's level by over $2 billion.This represents the highest volume of IBRD lending in the past six fiscal years. The share of development policy­based lending was slightly lower than in fiscal 2004. Latin America and the Caribbean received the highest level of IBRD loans and guarantees, with $4.9 billion or 36 percent of total IBRD commitments, followed by Europe and Central Asia with $3.6 billion and South Asia with $2.1 billion. Lending was slightly less concentrated than it was in fiscal 2004.Whereas five countries received roughly 57 percent of total lending in fiscal 2004, five countries--Brazil, China, Colombia, India, and Turkey--received a combined commit- ment volume equaling 53 percent of total IBRD lending in fiscal 2005. Among sectors, public administration, including law and justice, received the highest volume of IBRD lending ($3.4 billion), followed by transportation ($2.1 billion), and water, sanitation, and flood protection ($1.6 billion). The thematic composition of lending in fiscal 2005 was led by financial and private sector development, followed by environmental and natural resource management and social protection and risk management. Figures 3.11, 3.12, and 3.13 show IBRD lending by region, theme, and sector. Development policy­based lending commitments are shown on the accompanying CD-ROM. IBRD Resources IBRD obtains most of its funds by selling bonds in interna- tional capital markets. In fiscal 2005 it raised $13 billion at medium- to long-term maturities, roughly the same as in fiscal 2004. Debt securities, with a wide range of maturities and structures, were issued in 13 currencies. IBRD is able to borrow high volumes for long maturities on very favorable terms. IBRD's financial strength is based on its prudent financial policies and practices.These help IBRD maintain its high credit rating. As a cooperative institution, IBRD seeks not to maximize profit but to earn enough income to ensure its financial strength and sustain its development activities. IBRD's net income, excluding net unrealized gains (losses) on nontrad- 62 THE WORLD BANK ANNUAL REPORT 2005 ing (borrowings related) derivative instruments, as required by Financial Accounting Standard 133 and International Accounting Standard 39, was $1,320 million in fiscal 2005. IBRD retained $589.5 million in its general reserve and $68 million in its pension reserve, added $52.5 million to the surplus account, and transferred $400 million to IDA and $210 million to the HIPC Trust Fund. (See Financial Statements on the accompanying CD-ROM.) IBRD maintained adequate liquidity in fiscal 2005 to ensure its ability to meet its obligations. As of June 30, 2005, it held about $26.4 billion in liquid assets. As of June 30, 2005, IBRD's outstanding borrowings from capital markets were about $91.5 billion (net of swaps) (see figure 3.14).Total disbursed and outstanding loans were $104.4 billion. Borrowings exceeded equity by a factor of about three. Consistent with IBRD's development mandate, the principal risk it takes is the country credit risk inherent in its portfolio of loans and guarantees. Risks related to interest and exchange rates are minimized. One summary measure of the Bank's risk profile is the ratio of balance sheet equity to outstanding net loans, which is closely managed in line with the Bank's finan- cial and risk outlook.This stood at 31.4 percent as of June 30, 2005 (see figure 3.15). PARTNERSHIPS Globalization has brought about dramatic changes that require collective action by public, private, and civil society stakeholders.The Bank works with partners to manage global, regional, and country programs where partners share knowledge and play a joint role in funding, governance, or management.These programs have become an important line of business for the Bank. During fiscal 2005 the Bank worked in consultation with key partners to develop a strategic framework that will improve the Bank's selectivity and guide its support to high-priority programs with potential for strong development impact. (See "Evaluating the Bank's Work" in chapter 1.) Trust Funds World Bank­administered trust funds foster partnerships by mobilizing and directing concessional resources to support poverty reduction across a wide range of sectors and regions, supporting clients in achieving development results at the global, regional, and country levels. Much of the recent growth in these funds reflects the international community's desire for the Bank to help manage broad global initiatives through multilateral partnerships, such as the Global Fund to Combat AIDS,Tuberculosis and Malaria; the Global Environment SUMMARY OF FISCAL YEAR ACTIVITIES 63 Facility; and the HIPC Initiative.Trust funds also support the TABLE 3.2 World Bank Group's own development operations and work TOP TEN TRUST FUND DONORS MILLIONS OF DOLLARS programs. Many of these activities are described in the World Bank's Trust Funds Annual Report. (See site index at www FY04 FY05 .worldbank.org.) United Kingdom 585 552 Contributions, Funds Held in Trust, and Disbursements World Bank Group 466 462 Contributions from donors in fiscal 2005 totaled $4.8 billion, a decrease of 2 percent from fiscal 2004. Funds held in trust Netherlands 400 411 rose to $9.3 billion, an 8 percent increase.The top 10 donors European Community 880 408 accounted for 78 percent of all contributions (see table 3.2). Disbursements during fiscal 2005 totaled $4.2 billion, an Japan 508 405 increase of 29 percent over fiscal 2004. France 136 373 New Trust Fund Programs United States 594 358 In response to emerging development challenges, the donor community agreed to establish several new major trust fund Canada 198 321 programs during fiscal 2005. Germany 226 251 Indonesia--Multidonor Trust Fund for Aceh and North Italy 187 211 Sumatra The trust fund will support the rehabilitation and reconstruction of this area in the wake of the earthquake and Other donors 724 1,059 tsunami that struck in December 2004. Eight donors, includ- ing the Bank, have indicated their intention to contribute a Total contributions 4,904 4,811 total of $444 million. Sudan--Postconflict Multidonor Trust Funds Funds were Note: Donor ranking shown above is based on fiscal 2005 contributions. pledged toward Sudan's identified reconstruction and development needs through the creation of two multidonor trust funds--one for the north and one for the south of the country. A total of $508 million was pledged for the carbon emission reductions under the Kyoto Protocol.The 2005­7 period. Carbon Finance Assistance Trust Fund was set up as an $11 million multidonor facility supporting technical assistance in Vietnam--Poverty Reduction Support Credit Program recipient countries. Combined funding by five donors for $169 million cofinances an IDA grant of $100 million to provide a series of annual Cofinancing Poverty Reduction Support Credits from fiscal 2004 to Cofinancing is any arrangement under which funds from 2006.These credits are aligned with Vietnam's reform the Bank are associated with funds provided by sources from agenda and are aimed at transition to a market economy, outside the recipient country for a specific lending project social policies, and programs that are equitable and inclusive, or program.Typical cofinanciers include official bilateral and at the adoption of modern public administration and and multilateral agencies, and foundations, which provide governance systems. mostly concessional funding to recipient countries. In fiscal 2005, 123 Bank projects leveraged $9.3 billion in cofinancing. Newly Established Carbon Finance Arrangements Three new Major cofinanciers were the Inter-American Development major carbon finance arrangements were established this Bank ($2.2 billion) and the United Kingdom's Department year.The Danish Carbon Fund, with contributions totaling for International Development ($0.6 billion). Regions with $40 million, and the Spanish Carbon Fund, with contribu- the highest cofinancing were Latin America and the tions of $213 million, are designed to stimulate capital flows Caribbean ($3.3 billion), Africa ($1.7 billion), and South for sustainable development through the purchase of eligible Asia ($1.7 billion). 64 THE WORLD BANK ANNUAL REPORT 2005 THE WORLD BANK ANNUAL REPORT 2005 Office of the Publisher, External Affairs Editor Cathy L. Gagnet Assistant to the Editor Caroline L. Banton Contributing Editor Barbara S. Karni Editorial Production Cindy A. Fisher Mark Ingebretsen Mary C. Fisk Janet H. Sasser Print Production Monika D. 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