The World Bank Group has responded to the global economic crisis effectively, but it will face difficulties to address similar levels of crisis response in future, said a report sponsored by the global lender.

The group, therefore, has to develop a roadmap for future crisis preparedness, said the World Bank's Independent Evaluation Group Report.

According to the report, the roadmap should contain a systemic analysis of stress factors and a decision-making process for blending country-level responses within a global strategy.

The World Bank responded to the crisis that started in 2008 with an unprecedented volume of lending and with accelerated disbursements, the report said.

It said financially, the response was unprecedented. Average new commitments of the bank and International Finance Corporation (IFC) combined were $63.7 billion a year in fiscal 200910, compared with less than half that amount each year over the pre-crisis period in 200507.

Of this amount, the bulk ($45.4 billion, compared with $18.7 billion pre-crisis) represented IBRD and IFC financing in middle-income countries.

Partly as a result of the magnitude of its lending response, the International Bank for Reconstruction and Development (IBRD) -- the part of the World Bank that works with middle-income and creditworthy poorer countries -- now has less headroom to accommodate similar levels of expanded crisis response were it to become necessary in future.

The report said the sharp decline in headroom was driven by declining global interest rates, a pre-crisis reduction in IBRD's lending spreads and its predominant use of traditional instruments.

Under these conditions, the rapid lending increase led to a considerable decline in the Bank's equity-to-loan ratio that is projected to gradually decline further given the long repayment periods of IBRD loans.

The rapid increase in lending with a limited increase in capital and reserves has led to a decline in the bank's equity-to-loan ratio, from a peak of more than 37.5 percent before the crisis -- well above the long-term target -- to around 28.5 percent at the end of FY10.

The Independent Evaluation Group of The Breton Woods institution carried out the study on "The World Bank Group's response to the global economic crisis: phase II" to evaluate performance of the group.

The report said IFC kept the overall volume of its investments constant as it focused on protecting the portfolio. It launched several innovative crisis initiatives, although the implementation of some of them was delayed.

The MIGA's countercyclical support in Eastern Europe was important for key financial institutions.

The evaluation showed that the Bank extended support to the majority of severely crisis-affected countries, usually in the context of broader donor support packages, where its financial contribution was relatively small.

The report also found that the bulk of crisis support was focused on countries that turned out to be moderately affected. In some cases, the policy content of crisis-response operations was limited in addressing both short-term crisis impact and medium-term development goals.

“Using multiple measures of country stress, the study showed that the Bank's new lending reflected its pre-crisis lending patterns and had a low correlation with the severity of crisis impact in countries," said Anjali Kumar, lead evaluator and author of the report.

"This does not necessarily imply however that bank group support to the countries that received it was unjustified."

"The unprecedented global crisis and scale of the World Bank Group's response offer lessons for the Bank and the international community. What we need now is a roadmap for future crises," said Caroline Heider, director general for evaluation of the World Bank Group.

"This will help provide better calibrated support to address the specific needs of severely and less-affected countries when necessary."

The Daily Star/Bangladesh/ 28th Feb 2012