Civil Society to the World Bank: Development Policy Finance (DPF) May Fail without Safeguards; Commence Transparent Reform of DPF Policy Now.

BIC calls on the World Bank to use its recent 2021 Development Policy Finance (DPF) Retrospective as a starting point to undertake a robust DPF policy review and introduce mandatory social and environmental safeguards for the Bank and Borrower during development finance operations. An updated DPF policy should be designed to increase transparency, accountability and participation and explicitly require stakeholder engagement plans and social and environmental risk assessments.

BIC and our partners are calling on the World Bank to carry out a full review and revision of the policies that govern development policy finance (DPF). Civil Society has requested this repeatedly over the years, including in letters to the Bank in July 2020, May 2020, March 2017, as well as in comments submitted to the current DPF Retrospective. 

The Bank appears to regard DPF Retrospectives as an exercise in self-congratulation, rather than an opportunity to learn from its mistakes, adapt to changing development needs, and improve DPF policy. The Bank describes the DPF retrospective as a review of DPF effectiveness, and OPCS has conducted five such reviews since the main DPF policy, OP 8.60, was approved in 2004. None of these retrospectives has resulted in a significant change of policy in spite of the recommendations made in 2015 by the Bank’s own Independent Evaluation Group (IEG). 

The 2015 IEG report of the Bank’s DPF portfolio “found significantly more actions to have the risk of negative environmental or social effects than were identified by World Bank task teams” and provided recommendations for strengthening the Bank’s approach to environmental and social risk management with DPFs when it comes to guidance, procedures, incentives, and accountability mechanisms. The IEG recommendations provided an excellent starting point for the Board and other stakeholders to consider changes to the Bank’s DPF policy. However, it does not appear that the Bank has done much to take advantage of the insight provided by IEG to improve the development impact of DPF.

Failing to harmonize DPF with the Bank’s environmental and social safeguards undermines DPF as a tool to help the Bank reach its twin goals of ending extreme poverty and boosting shared prosperity. CSO-led research has found the lack of DPF social and environmental safeguards causes negative development impacts, particularly with respect to gender, Indigenous Peoples and ethnic communities, the climate crisis, and deforestation.

The Bank revised and modernized safeguards, culminating in the Environmental and Social Framework (ESF), to address emerging issues with project financing. However, the Bank did not conduct a similar modernization of DPF policy. Whereas the robust stakeholder engagement requirements of ESS10 apply to the Bank and Borrower, the 2017 DPF policy only requires the Bank to consider advising member countries to do stakeholder consultations during development policy operations. It is critical to bring DPF policies in line with the ESF by requiring stakeholder engagement plans for all DPFs, in tandem with other policy changes aimed at increasing social and environmental risk assessment, transparency, and accountability of development finance. 

While the Bank has excluded DPF from binding social and environmental safeguards, it has simultaneously acknowledged the significance of DPF as a proportion of the total commitments, going back to the 2015 Retrospective. The 2021 DPF Retrospective also noted that DPFs have “increased substantially in FY16-FY21.” The share of DPF in total IBRD commitments was 47 percent in Q4 of 2020 per the IEG, a greater percentage than for IPF, and up from a 10-year annual average low of 22 percent in FY18. Also per the 2021 Retrospective, the percentage share of DPF in total IDA commitments was 24 percent in FY20, up from the annual average of 12 percent over the period FY11 to FY18.

We urge the Bank to use the 2021 DPF Retrospective as the commencement of a long overdue transparent review and revision to strengthen DPF governing policy. BIC would welcome engagement with the Bank on this review, beginning with any opportunities to discuss a process for robust consultations with civil society.