A NEW INSTRUMENT TO ADVANCE DEVELOPMENT …

1 A NEW INSTRUMENT TO ADVANCE DEVELOPMENT . effectiveness : PROGRAM-FOR- results lending . REVISED CONCEPT NOTE. Investment lending Reform Operations Policy and Country Services February 23, 2011. ABBREVIATIONS AND ACRONYMS. AFR Africa Region BP Bank Procedure CCTs Conditional Cash Transfers CAS Country Assistance Strategy CODE Committee on DEVELOPMENT effectiveness CPS Country Partnership Strategy DLI Disbursement-linked indicator DPC DEVELOPMENT policy credit DPL DEVELOPMENT policy lending EAP East Asia and Pacific Region ECA Europe and Central Asia Region EEP Eligible expenditure program EFA FTI Education for All Fast-Track Initiative FM Financial management GAVI Global Alliance for Vaccines and Immunization GPOBA Global Program on Output-based Aid IBRD International Bank for

2 Reconstruction and DEVELOPMENT IAD Internal Audit Department IDA International DEVELOPMENT Association IEG Independent Evaluation Group IL Investment lending INT Institutional Integrity Department IP Inspection Panel ISR Implementation Status and results LCR Latin American and Caribbean Region M&E Monitoring and evaluation MCC Millennium Challenge Corporation MNA Middle East and North Africa Region OECD-DAC DEVELOPMENT Assistance Committee of the Organisation for Economic Co-operation and DEVELOPMENT OBA Output-based aid OP Operational Policy OPCS Operations Policy and Country Services P4R Program-for- results lending PESP Punjab Education Sector Project PFM Public Financial Management PID Project Information Document RBFH results -based financing in health SAI Supreme audit institution SAR South Asia Region SEP Sindh Education Sector Project SIL Specific investment lending SWAp Sectorwide approach UNICEF United Nations Children s Fund WHO World Health Organization A NEW INSTRUMENT TO ADVANCE DEVELOPMENT effectiveness : PROGRAM-FOR- results lending .

3 REVISED CONCEPT NOTE. CONTENTS. Executive Summary .. iii I. Introduction ..1. II. Country Strategies and World Bank instruments ..2. III. Experience with Programmatic Operations ..3. A. Summary of Experience ..3. B. Current lending Options ..5. IV. Rationale for Proposed Program-for- results lending ..7. V. Key Features and Use of P4R ..11. A. Key Features of P4R ..11. B. Use of P4R ..11. VI. Design and Implementation of P4R Operations ..13. A. Technical Assessment ..13. B. Systems Assessment of Fiduciary and Environmental and Social Issues ..16. C. Risk Assessment and Management Review.

4 21. D. Role of Corporate Oversight Units ..23. E. Remedies and Recourse ..23. VII. Challenges and Risks ..24. VIII. Next Steps ..26. Annex A. Summary of Experience ..29. Annex B. Technical Assessments ..35. A. Introduction ..35. B. Technical Assessments ..35. C. Systems Assessments ..41. D. Risk Assessment Framework ..53. Annex C: Draft Consultation Plan ..55. ii Boxes and Table Box 1. Programmatic IL: The Experience in Pakistan .. 4. Box 2. Using the IL INSTRUMENT in India and Brazil: Achievements and Limitations .. 6. Table 1. Complementary lending instruments .. 10. PROGRAM-FOR- results lending .

5 REVISED CONCEPT NOTE. EXECUTIVE SUMMARY. 1. World Bank Management is proposing a new Program-for- results (P4R) lending INSTRUMENT to respond to changing DEVELOPMENT needs and demand from borrowing countries. P4R would focus Bank support directly on improvements in sectoral or other DEVELOPMENT programs and would place more direct emphasis on results by making them the basis for disbursement. It would focus Bank technical and financial support more strongly on institutional DEVELOPMENT , particularly capacity to monitor results and strengthening of the country expenditure systems.

6 It would also enable the Bank to leverage its own financing and collaborate with other DEVELOPMENT partners through pooling resources and focusing efforts on supporting government programs . With its program-level orientation, the new INSTRUMENT would complement the Bank s two existing lending instruments investment lending (IL), which supports specific projects and disburses against specific transactions, and DEVELOPMENT policy lending (DPL), which supports policy and institutional 2. IL Reform. The proposal to introduce a new program lending INSTRUMENT emerged from the Bank s IL reform process.

7 As part of the IL reform progress report to the Committee on DEVELOPMENT effectiveness (CODE) in March 2010, Management indicated its intention to propose such an INSTRUMENT . CODE expressed support for the INSTRUMENT s focus on a program- based approach as a complement to the transaction-based approach of traditional IL. In October 2010, Management provided CODE with an initial draft of a concept note for the new INSTRUMENT . CODE supported the broad directions proposed in the note and requested additional details particularly with respect to the rationale for a new INSTRUMENT separate from IL and DPL, the definition and treatment of results and their links with disbursements, the assessment approach for procurement and environmental and social impact and risk management , and the name of the proposed INSTRUMENT .

8 This revised concept note responds to that request and provides further details on the proposed new INSTRUMENT . 3. Key Features. The key features of the proposed new INSTRUMENT would be as follows: (a) Finances specific sectoral or subsectoral expenditure programs . Disbursements would finance defined borrower expenditure programs designed to achieve specific results . Disbursements would not be attributable to individual transactions. (b) Disburses upon achievement of results and performance indicators, not inputs. Disbursements would be determined by reference to progress on monitorable performance indicators, rather than simply by whether expenditure had been incurred.

9 (c) Focuses on strengthening the institutional capacity that is essential to ensuring that the programs achieve their expected results and can be sustained. A priority area for both preparation and implementation support would be to strengthen the institutional 1. In addition, the Bank also offers Guarantees in the context of the mobilization of private sector finance. iv capacity of the country s own systems, and thereby to enhance DEVELOPMENT impact and sustainability. (d) Provides assurance that Bank financing is used appropriately and that the environmental and social impacts and risks of the program are adequately addressed.

10 The program would be monitored to ensure that loan proceeds are used for program expenditures and that these expenditures are incurred with economy and efficiency. The program would also ensure that an adequate system is in place to protect affected people and the environment. 4. Use of P4R. The proposed new P4R INSTRUMENT would provide client countries with a wider range of instruments to choose from, depending on the nature of the support they are seeking, the risks, and the desired results . DPL would remain the primary Bank INSTRUMENT to support policy and institutional actions to achieve a country s overall DEVELOPMENT objectives, with rapidly disbursing general budget support to help address DEVELOPMENT financing needs.