Marginal, no more: The World Bank’s trust funds

Women celebrate the opening of a health clinic sponsored by World Bank-financed Tanzania Social Action Fund. Photo by: Scott Wallace / World Bank

Following the devastating earthquake that hit Haiti in 2010, donors from around the globe pledged billions of dollars to help the country rebuild. Some of them decided to pool their resources in what is called the Haiti Reconstruction Fund.

HRF is just one of over a thousand trust funds being administered by the World Bank Group. To be exact, by June 30, 2011, the bank was managing 1,038 trust funds worth a total of $29.1 billion.

Some were found to have overlapping purposes, and the bank is now conducting joint portfolio reviews with donors to determine how trust funds may be consolidated.

“Donors are surprised when we show our tables and our analysis, for example on fragmentation,” Roberto Tarallo, manager of global partnerships and trust fund operations at the World Bank.” There is a donor — I am not going to mention here by name, but one of the main donors — who said it couldn’t believe [there are] 285 trust funds, most of them very, very teeny, tiny ones that have a lot of duplications at the country level and at the sectoral level.”

Devex spoke with Tarallo mid-June in Rome, on the margins of a round-table discussion about alternative financing sources and modes — like trust funds – for the International Fund for Agricultural Development. He told us how he sees the future of trust funds – multi-donor or not – in international development.

How will the joint portfolio review affect the way the World Bank operates trust funds?

Trust fund portfolio review has started only a year ago. This is a brand new tool, but one that looks very promising. This is an experience that we have already shared with other development partners, most recently at the donor forum in Paris. The donor forum gathers about 27 institutions, multilateral banks, bilateral donors, U.N. agencies and the European Commission.

I would say that the expectation is that this can become a strategic engagement tool between institutions — I am not just limiting to the bank — which are administering trust fund resources, and donors, in terms of shaping up the dialogue. …

What we see coming out of the donor portfolio review, in a nutshell, is to orient the strategic dialogue to help fundraising in a more structured and coordinated manner, help with portfolio cleanup and management [of], for example, those facilities that are still open but may not be strategically aligned with the development policy lending of donors. Also, [we’re] trying to introduce greater cost efficiency, greater efficiency in terms of managing those resources.

You talked about fragmentation. What’s going to be the next big innovation in the harmonization of foreign aid?

I would say [there are] three main trends that are shaping up. One trend is continuing to assign high relevance to specific country-level trust funds but trying to move to platforms that are multidonor in essence. The experience of the Afghanistan Reconstruction Fund is a good one. It is very well intertwined with everything else we do in that country — be it lending, be it analytical and advisory work and technical assistance. I think this is a really broader platform for cooperation in fragile and conflict-afflicted countries.

The second one, for those trust funds that are more thematical [or] sectoral in nature, is the emergence of the umbrella facilities. These flow directly from the [Independent Evaluation Group] recommendation of 2012, trying to really create better result orientation for these trust funds and coherence with the strategy of the bank, as it comes from sectoral strategies, but also trying to have an efficient governance structure: decision making made in a much more expedient end, allocation of resources following regular bank processes and downstream, strong attention to cost efficiency as a result of the economy of scale that are generated from [these umbrella facilities].

On the third level, we look at the global and regional partnership programs, most of which are funded by trust funds, but not necessary only by trust funds because, for example, the World Bank through its Development Grant Facility nurtures many of these partnerships. It’s the emergence … of a more participatory governance structure where new actors are coming into play.

Will recipient-managed trust funds become the norm in the next couple of years?

Yes, for us, it is the norm at the World Bank. If you think of an averaging for 2011, there were about $3.9 billion disbursements in trust fund resources and out of this, $3.2 billion were recipient-executed.

When we say recipient-executed, it is the World Bank transferring funds to recipients and those are implemented in country — it can be sovereign, it can be civil society organizations, it can be others. The idea is that by doing that, we enhance the country model that we follow for anything else we do, in terms of lending, for example, and advisory and technical assistance.

That’s the future. We want that balance to be preserved. Of course, bank-executed trust funds, those that are administrated [by the bank], are important because they can complement a lot [of] what we do, in terms of research, for example, economic research. …

A recent report on behalf of the U.K. Department for International Development suggested that the effectiveness of MDTF aid financing mechanisms hasn’t yet been properly proven. What would you say?

I would say that we need more rigorous study of this, which needs to be joint. What I like about our relationship with the DfID, since you brought them into the picture, is that we have really started [with DfID] before … other donors a very rigorous set of portfolio management work that has led, for example in the area of results, trying to benchmark the log frame that they use for measurement of results and our results framework.

As you know, the bank has core indicators — [they] can be sectoral, can be country, can be aggregated along the scorecard dimensions. We’re now trying to see if there is any gap. Are we measuring success along the same line? Are we using the same indicators? When we say that there is better access to drinking water, do we mean the same thing?

This is the type of things that we are trying to do with the Brits. … I don’t know in the context in which this study was carried out; I need to familiarize it myself, but I would say attention to results, measurable results and trying also to move away from the linkage between inputs and outputs, and looking a little bit more at the outcomes. [This] is a common denominator in many countries because of the scarcity of resources.

Someone in the conference today (June 12) said: “Traditional donors are trying to step away from middle-income countries to focus on low-income countries because that’s where the impact can be a more visible, because these are the countries that need it the most.” I think this is a little bit the trend we are going to see — value-for-money in the form of efficiency and results. This is going to be the way forward on trust funds.

Do you think there is something that can be done to improve the implementation of trust funds?

Absolutely. My experience at the World Bank has been that trust funds have often been seen as a marginal line. At least when it started 25 years ago, there was a duplicative system, parallel system for trust funds and for operations — there was very little attention to integrate the two. …

And now the more we talk about aid effectiveness and see how it all comes together, there is also the need to improve those processes because they can be very inefficient — one for all reporting systems, manuals — I am not saying it is like this now, but it used to [be that way]. And [there was an] ad hoc management structure that [didn’t] really use the same quality assurance mechanisms that are in place already.

I think there has been a lot progress, at least at the World Bank, in this area to make the two [trust funds and core operations] really integrated, from the planning down to the reporting.

Are trust funds a threat to a true multilateralism U.N.-style, where all U.N. member states contribute?

I see they are not different from core resources. The problem is that traditionally we have seen a dichotomy between donor countries and recipient countries. Now we see that the walls are coming down.

Some countries may be still recipients of development assistance, and they want to become donors at the same time. You see that coming much more in the forefront and that’s where there is potential for broadening the dialogue, also in understanding how to help those countries to become good donors and avoid maybe the mistakes that have been done in the past by the donor community.

I see this becoming much more important: Some donors don’t like to be called donors, in the OECD-DAC [Organization for Economic Cooperation and Development’s Development Assistance Committee] type. They are more in terms of international cooperation. We need to respect their cultural differences that need to be harmonized. But at the end of day, what really matters is how we can sustain the official development assistance in a way that can continue to generate economic development.

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About the author

  • Elena L. Pasquini

    Elena Pasquini covers the development work of the European Union as well as various U.N. food and agricultural agencies for Devex News. Based in Rome, she also reports on Italy's aid reforms and attends the European Development Days and other events across Europe. She has interviewed top international development officials, including European Commissioner for Development Andris Piebalgs. Elena has contributed to Italian and international magazines, newspapers and news portals since 1995.