Report by Independent Evaluation Group on World Bank’s Crisis Response released

A phase-two study of the World Bank’s crisis response, presented in a report, titled The World Bank’s Response to the Global Economic Crisis: Phase II was released on 23 February 2012. The report noted that during its response to the worst financial-economic crisis that hit the world economy in 2008, the World Bank failed to adequately modify its lending patterns as per the severity of the downturn across nations. It therefore currently finds itself with potentially insufficient headroom to respond to a second crisis of similar or greater magnitude to the one in 2008-09.

The study report was unveiled by its authors at the Independent Evaluation Group (IEG), which is a member of the World Bank group of institutions but reports to the Bank’s Board of Executive Directors rather than its management. Anjali Kumar is a lead author of the report and a Lead Economist with the IEG

The Report

Low resource allocation at the start of the crisis and the assumption that all financing demands could be accommodated from existing patterns of lending had played a role in the Bank’s ultimate lending decisions.

The report observed that while equity-to-loan ratios of the Bank at the outset of the crisis were around 37.5 per cent, the recent financial figures released by the Bank for quarter closing September 2011 suggested it had come down to 27 per cent.

The lending phenomenon was driven by country demand for Bank lending, and hence countries that were most engaged with the Bank before the crisis such as India and Indonesia – tended to approach the Bank more and in some cases get loans more quickly.
Other factors such as the limited fiscal capacity of certain countries and the fact that some countries went to other lenders such as Russia’s engagement with the European Bank for Reconstruction and Development and Ecuador and Venezuela’s reliance on the Inter-American Development Banks also affected the bank lending.

The IEG also noted that while much of the budget-support lending that the Bank undertook in India had helped signal the strength of public sector banks in the country, yet many of these public sector banks had capital adequacy ratios conforming to Indian government norms at the outset of crisis. This aspect raised the question of Bank lending priorities during the crisis – for example whether it was a priority for the Bank to provide precautionary buffer capital to banks that were adequately capitalised.