The 2018-2019 Trust Fund Annual Report highlights how trust funds help the World Bank Group (WBG) attain its institutional goals¡ªto end extreme poverty and promote shared prosperity. In 2013 the WBG issued Forward Look ¨C A Vision for the World Bank Group in 2030 (Forward Look), setting out four pillars¡ªServing All Clients, Maximizing Finance for Development, Leading on Global Issues, and Improving the Business Model¡ªto shape how the WBG will deliver on these twin goals to support the 2030 development agenda and the achievement of the Sustainable Development Goals (SDGs). The cornerstone of delivering this ambitious agenda rests on adequate financial capacity, flexibility to respond to any changes in the global context and strategic priorities, and working together as one WBG to build on the comparative advantages of each institution. WBG trust funds and FIFs play a vital role in meeting these needs and implementing each of the Forward Look pillars.
WBG trust funds and FIFs are among the WBG¡¯s main channels of development assistance (along with IBRD and Å·ÃÀÈÕb´óƬ), and the WBG holds a substantial portfolio of such funds: the amount of WBG funds held in trust (FHIT) as of end-FY19 is estimated at $12.1 billion. These funds provide significant and predictable multiyear funding for the WBG to utilize in support of flexible and customizable development solutions that serve client countries.
World Bank Group trust funds finance about two-thirds of the World Bank¡¯s advisory services and analytics and augment the World Bank¡¯s ability to serve its clients, with about 76% ($15.1 billion) of total trust fund disbursements going to client countries over FY15¨CFY19. Of this amount, over $11 billion has been disbursed to Å·ÃÀÈÕb´óƬ and blend countries. IFC trust funds provide funding to IFC¡¯s Advisory solutions for private sector clients, especially in Å·ÃÀÈÕb´óƬ countries, which constituted 59% of the Advisory Program in FY19. IFC¡¯s Advisory portfolio has over 783 projects spanning 100 countries and has disbursed approximately $1.5 billion over the past five years. Between FY15 and FY19 WBG trust funds received $17.5 billion in contributions¡ª$15.9 billion to World Bank trust funds and $1.6 billion to IFC trust funds.
Financial intermediary funds are financial arrangements that typically leverage a variety of public and private resources in support of international initiatives, enabling the international community to provide a direct and coordinated response to global priorities like agriculture and food security, environment and climate change, and natural disasters. FIFs allow the World Bank to support the international community in providing targeted and coordinated responses that focus on the provision of global public goods, such as preventing communicable diseases, responding to climate change, and improving food security. FIFs tend to be larger than IBRD/Å·ÃÀÈÕb´óƬ trust funds: at end-FY19, FIFs accounted for 67% ($23.1 billion) of the total WBG FHIT. Contributions averaged $7.5 billion annually, while cash transfers to implementing entities remained relatively steady, with an average annual transfer of $6.5 billion over the past five years.
Value Proposition of WBG Trust Funds
Trust funds support the achievement of the goals of the Forward Look strategy by providing financial resources, contributing to the knowledge agenda, and leveraging the Bank¡¯s convening power and global and local presence to contribute to country, regional, and global development.
Trust Fund Reform
Through several rounds of trust fund reform dating from 2001, the WBG has made significant progress in increasing the efficiency, alignment, and oversight of its trust funds. However, it still needs to reduce the fragmentation of the portfolio; increase trust funds¡¯ alignment with the WBG¡¯s priorities and their integration with its strategy, planning, budgeting, and staffing processes; and increase efficiencies in their administration and use.
The current World Bank trust fund reform phase will feature ¡°Umbrella 2.0¡± Programs, aligned to the highest strategic priorities, that could include multiple ¡°associated¡± trust funds. Moving to fewer and larger programs will improve strategic alignment, enable efficiency gains, help increase the focus on results, and improve reporting, communications, and visibility. Work to strengthen trust funds¡¯ integration is largely focused on improving the link between upstream decisions to mobilize trust fund resources and priorities for work program delivery, and on aligning trust fund allocation cycles with the WBG planning and budgeting cycle so that trust-funded activities and resources can be taken into consideration as part of the exercise. In addition, a range of efficiency measures are being developed and implemented to streamline and simplify internal processes and systems; better guidance has been made available to staff in a number of areas; and a support system that offers staff a single point of entry for questions and support related to trust funds is being rolled out, with up-to-date guidance on the entire trust fund life cycle. As part of this reform process, IFC is also evaluating its trust fund portfolio to effectively support the implementation of the IFC 3.0 strategy that is embedded in the WBG Forward Look vision.
Extensive engagement and consultation with internal stakeholders, shareholders, funding partners, and clients are an integral part of the reform process, ensuring strong buy-in for the detailed recommendations that address these challenges and opportunities.
Financial Intermediary Funds
To meet development challenges that are not sufficiently addressed by existing funds and financing mechanisms, the World Bank sometimes partners with other institutions or organizations, such as other multilateral development banks or United Nations agencies, to support collective action through large global or regional initiatives, implemented through FIFs. FIFs are a special type of trust fund that provides large-scale funding for broad, coordinated interventions, usually focused on particular themes, and typically aimed at achieving GPGs.
Å·ÃÀÈÕb´óƬ has a large and growing portfolio of FIFs. Since the establishment of the first FIF in 1971, total cumulative funding to FIFs as of end-FY19 has amounted to $104.4 billion, of which $7 billion was contributed in FY19. The number of active FIFs has more than doubled from 12 at end-FY08 to 27 at end-FY19. Å·ÃÀÈÕb´óƬ serves as limited trustee of all FIFs, providing a set of agreed financial services that include receiving, holding, and investing contributed funds, and transferring them when instructed by the FIF governing body. Under some FIFs, the World Bank also provides customized treasury management or other agreed financial services, such as bond and swap issuance, hedging intermediation, the purchase of insurance products, and monetization of carbon credits. In addition, the World Bank may host a FIF¡¯s secretariat. Å·ÃÀÈÕb´óƬ and the IFC can serve, alongside other entities, as implementing entities to which the trusteeship transfers resources. Recent independent evaluations of FIFs hosted by the World Bank have found that the operations of FIFs are supported by strong management systems and financial controls and that hosted secretariats benefit from the strengths of the underlying infrastructure provided by the World Bank.
Financial Intermediary Funds Reform
While the development community, including the World Bank, can benefit from the Bank¡¯s engagement in FIFs, FIFs also present challenges. As their numbers have grown, the newer FIFs have often been smaller in contribution size, with narrower and sometimes overlapping mandates. The fact that FIFs have independent governance and their own terms for access to and use of funds can contribute to aid fragmentation and increased complexity for clients and implementing entities. Therefore, the World Bank has updated its FIF Management Framework to strengthen future selectivity by articulating a menu of options for responding to global calls for collective action, combined with more systematic internal review processes that take alternatives into consideration.