support the most vulnerable, maintain long-term infrastructure investment, and sustain the potential for private sector-led growth. In doing so, the WBG committed $128.7 billion and disbursed a record $80.6 billion during fiscal years 2009 and 2010—more than any other international financial institution (IFI).

Vinod Thomas, Director-General, Evaluation, noted: “The World Bank Group’s response has fitted the nature of the crisis — which called for a fiscal expansion to compensate for sharply declining trade and private capital flows. The financing from the WBG and other IFIs has helped in the worldwide effort to avert what might have been a harsher global downturn. The ensuing challenges are with emerging fiscal imbalances, higher debt levels and financial sector vulnerabilities—and with ensuring that the increase in spending produces sustainable results.”

This IEG study is a real- time assessment of ongoing activities. As such, it evaluates the immediate results and serves as an input to the WBG’s continuing efforts to address the effects of the crisis. The evaluation of the development impact of WBG’s response will be taken up at a later stage.

There have been notable variations in the nature of the response across the WBG entities. Substantially increased lending by the International Bank for Reconstruction and Development (IBRD) was accompanied by moderately higher financing through the International Development Association (IDA). The volume of new operations of the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), the private sector arms of the Group, followed the business cycle and focused on a set of targeted interventions. These included IFC’s efforts in trade finance, especially in low-income countries and the introduction of a set of innovative initiatives. MIGA guarantees supported European banks’ cross-border investments in Eastern Europe and the Former Soviet Union.

The World Bank (consisting of IBRD and IDA), while responding to the crisis with some delay, has demonstrated preparedness based on its knowledge of poverty impacts, long-term dialogue with country authorities, and ability to expand lending—aspects that need continued and careful attention. Areas that need strengthening include the ability to act quickly in the event of such crises and preparedness to carry out financial sector interventions. IFC’s crisis initiatives responded creatively to capital constraints and had a positive effect especially in low- income countries; yet implementation challenges were underestimated and the Corporation gave priority to protecting its portfolio. MIGA played a supportive, crisis response role with existing clients in Eastern Europe, but there was not a significant uptake elsewhere. Going forward, greater synergies must be realized across the WBG.

For the World Bank, this review underscores the value of maintaining an active policy dialogue with countries, emphasizing further its analytical and knowledge work, and having greater versatility in its use of financial instruments for crisis responses. For IFC, there is the need to secure financial headroom and look beyond portfolio protection, with a focus on development effectiveness. Lessons for MIGA concern greater product flexibility and enhanced business development.

Increased poverty resulting from the financial crisis will be a major challenge in the foreseeable future. The World Bank estimates that the crisis left an estimated 50 million more people in extreme poverty (below the $1.25 a day poverty line) in 2009, and some 64 million more will fall into that category by the end of 2010. Even with rapid economic recovery, some 71 million people will remain in extreme poverty by 2020 who would have escaped it had the crisis not occurred, coupled with unemployment rates that remain high in several countries.

Even in a financial crisis, the WBG needs to support the crucial requisites for long-term results — fiscal and debt sustainability, structural reforms, environmental and social sustainability, and actions to reduce risks related to climate change. Finally, improved coordination among WBG institutions and other development partners during response initiatives will continue to be of paramount importance.