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World Bank Group Strategy for Fragility, Conflict, and Violence 2020–2025 Review

International Affairs Academy

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The Growing Challenge of Fragility, Conflict, and Violence

i. Addressing the challenges of fragility, conflict, and violence is critical to achieving the World Bank Group’s twin goals of ending extreme poverty and boosting shared prosperity. By 2030, more than half of the world’s extreme poor will live in countries characterized by fragility, conflict, and violence (FCV).1 Preventing and mitigating FCV challenges is key to making progress toward the Sustainable Development Goals (SDGs) and to the international community’s broader efforts to promote peace and prosperity.

ii. The global fragility landscape has worsened significantly in recent years, impacting both lowand middle-income countries. Violent conflicts have increased to the highest levels observed over the past three decades.2 The world is also facing the largest forced displacement crisis ever recorded.3 Rising inequality, lack of opportunity, discrimination, and exclusion are fueling grievances and perceptions of injustice. Climate change, demographic change, migration, technological transformations, illicit financial flows, and violent extremism are often interconnected, posing risks that transcend borders. Many countries also suffer from chronically poor governance. These factors can increase vulnerability to shocks and crises and can create regional and global spillovers. They could cause devastating impacts, especially for women, children, youth and people with disabilities, that could be felt for generations. Without swift and effective action, FCV risks could both erode gains made in the fight against poverty and undermine the prospects for further progress.

iii. Faced with these dynamics, the World Bank Group (WBG) has been changing the way it works in FCV settings. This work has evolved from a focus on post-conflict reconstruction to addressing challenges across the full spectrum of fragility. The 2011 World Development Report Conflict, Security, and Development emphasized the close link between security, justice, and development. The 2018 joint UNWBG report, Pathways for Peace, called on the WBG to “pivot to prevention” by further prioritizing inclusive approaches to development that can help prevent and mitigate FCV risks before conflict and violence take hold. Furthermore, even in the toughest environments during conflict, the WBG can meaningfully engage to preserve institutional capacity and human capital that will be critical for the country’s future recovery. And when signs of recovery emerge, the WBG can support governments that are embarking on transformational change.

iv. To meet the growing challenges, the WBG is significantly scaling up the volume and types of financial support it provides for FCV in both low and middle-income countries. For low-income and lower-middle income countries (LICs and LMICs) that are classified as “fragile and conflict-affected situations” (FCS),4 the 18th replenishment of the International Development Association (IDA18) represented a paradigm shift in terms of both the volume of resources and how those resources are provided.

The $14 billion available in IDA18 for IDA countries affected by FCS is double the level of IDA17, the previous three-year replenishment period. IDA18 has also introduced a more tailored engagement in different situations of fragility, including investing in conflict prevention, supporting refugees and host communities, preventing and responding to gender-based violence, engaging in situations of active conflict, and supporting transitions from conflict to peace. Looking forward, the 19th replenishment of IDA (IDA19)5 will scale up resources to countries affected by FCV, including through an FCV Envelope that offers a structure of incentives and accountabilities for countries to reduce FCV risks. For International Bank for Reconstruction and Development (IBRD) countries, the Global Concessional Financing Facility has provided more than $3 billion in concessional assistance to middle-income countries affected by refugee crises, and a new IBRD Fund for Innovative Global Public Goods Solutions (GPG Fund) offers incentives for countries to address FCV spillovers. More broadly, the 2018 IBRD and International Finance Corporation (IFC) Capital Increase package highlighted the importance of stronger WBG efforts to systematically address FCV in middle-income countries, with a view to reinforcing country, regional, and global stability and development. v. Recognizing that the private sector lies at the center of a sustainable development model in FCV settings, IFC and the Multilateral Investment Guarantee Agency (MIGA) are significantly scaling up their efforts.

The 2018 IFC Capital Increase WORLD BANK GROUP STRATEGY FOR FRAGILITY, CONFLICT, AND VIOLENCE 2020–2025 ix package placed strong emphasis on IFC’s growth in IDA and FCS countries. IFC committed to increasing its share of investment commitments in IDA and FCS to 40 percent by Fiscal Year 2030, with 15-20 percent in low-income IDA and IDA FCS countries. This would require at least a five-fold increase in investment volumes from the current level. Similarly, MIGA has prioritized FCS since 2005. MIGA’s portfolio in FCS has increased continuously since 2013 and stood at a record $2 billion in 2019. IFC and MIGA efforts were further boosted by the introduction in IDA18 of the $2.5 billion Private Sector Window (PSW), which allows them to further scale up their investments in FCS, thus complementing IDA’s support for policy reforms that are aimed at stimulating private sector-led growth. IFC has also strengthened its engagement in FCS through the Conflict-Affected States in Africa (CASA) and FCS Africa initiatives, and its advisory support through the Creating Markets Advisory Window (CMAW). The WBG Framework for Engagement in FCV

vi. The objective of the WBG’s FCV Strategy is to enhance the WBG’s effectiveness to support countries in addressing the drivers and impacts of FCV and strengthening their resilience, especially for their most vulnerable and marginalized populations. This work is critical to achieving the WBG’s twin goals. The strategy sets out a new framework for understanding FCV and a robust set of measures to increase the effectiveness of WBG development support to both low- and middle income countries that are dealing with diverse challenges across the FCV spectrum, including high levels of violence, forced displacement shocks, and subnational conflict.

vii. The FCV Strategy builds on a range of inputs— including successive Independent Evaluation Group (IEG) reviews of WBG engagement in FCV settings, portfolio reviews, global consultations carried out during 2019, and lessons learned from operational experience—to systematically address the root causes of fragility as well as the long-term risks that can drive or exacerbate conflict and violence. viii. An essential premise for the FCV Strategy is that, given the diversity of FCV challenges, there can be no one-size-fits-all approach. Operating in FCV settings is far from business as usual because of often rapidly changing circumstances, differing levels of insecurity, fragile and volatile political situations, macroeconomic instability, low institutional capacity, a weak enabling and investment climate for the private sector, higher risks of violence against vulnerable populations, and significantly higher risks and costs of engagement.

ix. The WBG approach must therefore be adapted to the distinct circumstances of FCV settings, with Country Partnership Frameworks (CPFs) and programs tailored to addressing the root causes of fragility. Greater on-the-ground presence is key in the most challenging environments. And given the protracted and complex nature of FCV, development actors must plan to stay engaged over the long term, including during conflict and crisis situations. This requires an acceptance of higher risks by development actors, as well as partnerships with a diverse range of stakeholders.

x. Building on operational and analytic experience in FCV settings, the FCV Strategy articulates a differentiated approach to FCV. It is structured around a set of guiding principles and four pillars of engagement that are designed to strengthen the WBG’s approach and address challenges across the full spectrum of FCV. The four pillars provide specific guidance on how to engage in different types of FCV settings, help inform CPFs and programs, and ultimately provide more effective and tailored support to both government and private sector clients. They are:

1. Preventing violent conflict and interpersonal violence by addressing the drivers of fragility and immediate- to long-term risks—such as climate change, demographic shocks, gender inequality, patterns of discrimination, economic and social exclusion, and perceptions of grievances and injustice—and strengthening the sources of resilience and peace before tensions turn into full blown crises.

2. Remaining engaged during conflict and crisis situations to preserve hard-won development gains, protect essential institutions, build resilience, and be ready for future recovery.

Helping countries transition out of fragility, by promoting approaches that can renew the social contract between citizens and the state, foster a healthy local private sector, and strengthen the legitimacy and capacity of core institutions. 4. Mitigating the spillovers of FCV to support countries and the most vulnerable and marginalized communities that are impacted by cross-border crises, such as forced displacement or shocks resulting from famines, pandemics, and climate and environmental challenges.

xi. In addition, the WBG will place special emphasis on six high-priority issues in FCV settings: (i) investing in human capital; (ii) supporting macroeconomic stability and debt sustainability; (iii) creating jobs and economic opportunities; (iv) building community resilience and preparedness, especially regarding the impacts of climate change and environmental degradation; (v) engaging on justice and the rule of law; and (vi) developing approaches to dealing with the security sector within the WBG’s mandate and comparative advantage. Throughout WBG engagement in FCV settings, a special focus will be put on gender in line with the WBG Gender Strategy.

xii. The FCV Strategy articulates the WBG’s comparative advantage in FCV settings. This centers on the WBG’s role as a development actor committed to sustained and long-term engagement that can support national systems, strengthen core state functions, and build institutional resilience and capacity. The strategy stresses the WBG’s role in engaging with a wide array of clients from the public and private sectors—including national, subnational, and local governments; local micro-, small-, and medium-sized enterprises (MSMEs); and regional and multinational private sector firms—and leveraging financing to incentivize investments and influence critical policy reforms that address the root causes of fragility.

xiii. The FCV Strategy recognizes the importance of pursuing public and private sector solutions to help create jobs, deliver services, foster social cohesion, and promote inclusive economic growth. Achieving impact at the market and sector levels requires an integrated WBG approach in which the World Bank, IFC, and MIGA operate in a complementary manner, both upstream and downstream, to deliver investments and help create jobs. The strategy therefore emphasizes the WBG’s role in strengthening the enabling environment for private sector-led growth and upstream project development, supporting local private sector actors, enhancing conflict-sensitive approaches to investments, and helping catalyze and de-risk investments in FCV settings. IFC’s Creating Markets strategy, which is critical in the FCV context, focuses on looking beyond individual projects to impacts on entire markets; this requires a sectoral focus for project development and advisory work.

xiv. The FCV Strategy highlights the importance both of a calibrated response to risk that ensures full compliance with WBG safeguards, and a higher tolerance for the likelihood that some risks will materialize during program implementation. Working in FCV settings often carries significantly higher risks, such as (i) the physical security risk to WBG staff, borrower counterparts, and beneficiaries; (ii) high risk of violence against vulnerable groups; (iii) weak or nonexistent institutional capacity, which can negatively affect development impact; (iv) environmental, social, and governance (ESG) risks; and (v) fiduciary risks, including fraud and corruption. Elevated risks require more proactive risk management, combined with targeted and rapid support when risks do materialize. More specifically, to pursue projects in FCV settings that are characterized by increased political and conflict risks, market uncertainty, and high operational costs, IFC and MIGA will appropriately balance the increased risks and costs of expanded FCV engagement with diversification of programs across sectors and countries of operation. Operationalizing the FCV Strategy

xv. To carry out the FCV Strategy, the WBG has set out measures to strengthen its effectiveness in FCV settings. Some of these are also included as policy commitments under the FCV Special Theme for the IDA19 Replenishment. While full operationalization of the strategy will take place through WBG regional implementation plans, country programs, and operations covering FCV, these measures are crucial to strengthening the WBG’s approach to the distinct

xi nature of FCV settings. The measures are organized along “Four P’s”: policies, programming, personnel, and partnerships (see table 1): On policies, the WBG will update the framework with regards to engagement in humanitarian crises and forced displacement situations, and engagement on approaches to dealing with security and military actors within its mandate and comparative advantage. The aim is to ensure that policies, processes, and practices are fit-for-purpose, streamlined, and flexible for FCV settings. On programming, the WBG’s strategies and operations will more systematically address the drivers of FCV in their design and will adapt implementation and supervision approaches to the complex and rapidly changing dynamics of FCV settings. The WBG will also enhance its operations and ensure coordinated approaches across its institutions for upstream project development and downstream capacity building for the private sector. On personnel, the WBG will increase its on-the ground presence in FCV settings, strengthen the link between FCV experience and career development, as well as further invest in the skills, knowledge, and incentives needed for staff to deliver. On partnerships, based on respective complementarities and comparative advantages, the WBG will further step up its partnerships with humanitarian, development, peacebuilding, security, and private sector actors to maximize impact on the ground.

xvi. The FCV Strategy articulates a tailored financing architecture for countries impacted by FCV challenges, in line with the four pillars of engagement. The WBG’s financing architecture— which includes IDA and IBRD financing, trust funds, IFC investments, and MIGA guarantees— complements and aligns both with the IDA19 FCV Special Theme and with the focus on FCV in the 2018 IBRD and IFC Capital Increase package. In addition, IFC and MIGA have specific arrangements to further support FCS, including through access to the Private Sector Window and other blended facilities, as well as the IFC-MIGA Partnership Joint Business Agreement.

xvii. The implementation of the operational framework and the specific measures articulated by the strategy will strengthen the WBG’s impact on the ground in the most challenging settings. To this end, the strategy will offer direction for staff on the WBG’s operational parameters and comparative advantage in FCV settings to support country strategies and operations. The aim is to be more selective, adaptive, and geographically targeted on the areas most affected by FCV challenges and on where the WBG’s development support can have the greatest impact. Through increased presence, enhanced skills, and greater incentives for staff in FCS, the strategy is expected to result in greater onthe-ground support to help government and private sector clients build capacity and implement projects.

xviii. Implementation of the strategy will occur at four levels to ensure that the WBG adapts its approach to the distinct nature of FCV settings:

(1) through the 23 operational measures outlined in the strategy;

(2) through corporate strategies, initiatives, and commitments where FCV is prioritized, such as the IDA19 Replenishment, the IBRD and IFC Capital Increase package, the FY20-22 HR Strategy, and MIGA’s FY21-23 Strategy;

(3) through FCV country and regional programs; and

(4) through analytics and operations in FCV-impacted countries.

xix. Progress on implementation of the FCV strategy will be monitored and reported back to the WBG’s Board of Executive Directors. There will be stocktaking through annual updates to the WBG Board, a mid-term review on the operationalization of the strategy by the end of 2022, and a review to be conducted by the Independent Evaluation Group by 2024.


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