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Update on Analytical Tools for Resource Allocation

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Update on Analytical Tools for Resource Allocation

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    1. Update on Analytical Tools for Resource Allocation Country Business Planning Model and Country Norms Presentation to the Management Committee November 11, 2002

    2. Update on Analytical Tools for Resource Allocation - November 11, 2002 2 Objective Five key trade-offs to maximize the development impact of our resources Need for sound analytical tools to better inform these trade-offs

    3. Update on Analytical Tools for Resource Allocation - November 11, 2002 3 Analytical Tools – Overview For the resource allocation across countries, three tools have been developed to inform the decisions Country Business Planning Model (CBPM): Tool to calculate the cost of the work program Expenditure Trends: Analysis based on our cost structure and our staffing plans Country Norms: Benchmarks based on country characteristics (population, poverty, and performance)

    4. Update on Analytical Tools for Resource Allocation - November 11, 2002 4 Analytical Tools – CBPM and Expenditure Trends Country Business Planning Model: Developed in FY00; new version in FY03 with better integration with our systems Updated by each country team as part of the planning and budgeting cycle to reflect work program agreed in CASs Reflects deliverables, clients’ demand, specific country situations (e.g. post conflict, political opportunities) Analysis of alignment of work programs and corporate priorities in terms of sector and themes Expenditure Trends: Prepared by SRM to inform decisions on Unit envelopes as part of the planning cycle Analysis of alignment between staffing and resources; analysis of internal absorptive capacity Reflects cost of doing business in different locations

    5. Update on Analytical Tools for Resource Allocation - November 11, 2002 5 Country Norms – Overview Country Norms: Tool initially developed in FY95 and used as a reference for budget allocation since FY97; reviewed by a taskforce in Aug-Oct 2002 Formula based on three components (but no earmarking): Country Envelope = “core” supervision + lending + advisory/knowledge Supervision protected by a “core” set-aside Lending and Advisory/Knowledge services governed by separate formulas in order to show transparently that budget for Advisory/Knowledge services is not linked to performance

    6. Update on Analytical Tools for Resource Allocation - November 11, 2002 6 Country Norms – Details (1) Lending and advisory/knowledge components are based on: Population: If country A has a 50% higher population than country B, it will get a 22% higher allocation This will properly fund work program in small countries (no economies of scale, core ESW requirements), without penalizing large countries Poverty: Poverty index calculated using income/cap and Gini coefficient If country A has 50% higher poverty incidence than country B, it will get an 8% higher allocation Performance (only for lending): Performance index calculated according to IDA 13 methodology If country A’s performance is 50% above country B’s, it will get a 13% higher allocation for lending The weight for poverty and performance will be doubled gradually over the next 5 years

    7. Update on Analytical Tools for Resource Allocation - November 11, 2002 7 Country Norms – Details (2) The “core” supervision component is based on the number of operations in the portfolio, excluding projects that are more than 7 years old (more than 3 years for adjustment loans) Additional factors included in the formula: Access to Capital Markets: for countries rated BBB- or higher by S&P, lending allocation is reduced by 40%, increasing to 90% when ratings are A or A+ “Young” Members: a premium for new Bank members decreasing 9% per year during the first 15 years A special treatment for China and India based on work program: Differences between Norms and actual expenditures that are small at the scale of these countries would have a large impact on the allocation to all other countries

    8. Update on Analytical Tools for Resource Allocation - November 11, 2002 8 Country Norms – Results The Country Norms indicate (even though their results are not meant to be mechanically applied): A redistribution from Upper MICs to LICs Significant increase in SAR, large decrease in ECA in FY04

    9. Update on Analytical Tools for Resource Allocation - November 11, 2002 9 Use of Analytical Tools

    10. Update on Analytical Tools for Resource Allocation - November 11, 2002 10 Country Norms – Concerns Raised The Country Norms are too simplistic Trying to include all the elements of the decision in one single analytic tool is not realistic. The simplicity of the Country Norms is a strength to provide objective benchmarks This tool will further increase the incentive to distort our internal CPIA ratings The same risk comes from the use of the CPIA in the IDA allocation formula. This risk can be managed through the quality assurance role of OPCS and other central units in the CPIA rating process ECA’s poverty line and Purchasing Power Parities are distorted A valid concern. ECA will work with DEC and other units to improve these indicators. We stand ready to use new data that emerge from this work and recalculate the norms ECA can not absorb a budget cut

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