Discussion Paper

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Does the World Bank Group efficiently promote private sector investment? The case of energy transition

Bonn: German Institute of Development and Sustainability (IDOS)

ISBN: 978-3-96021-267-6
DOI: https://doi.org/10.23661/idp22.2025

Both World Bank shareholders and the Bank’s management have emphasised the need for large-scale private investment to achieve development and climate goals. For the World Bank Group, this means collaborating more closely between its different institutions, an issue that World Bank President Ajay Banga has prioritised. This paper examines the extent to which these ambitions are being translated into practice, using energy-related reforms, with a focus on renewable energy sources, as an example. Through three country case studies (Romania, Bangladesh and Cameroon), it examines how the Bank’s diagnostic work is reflected in its country strategies and policy-based lending programmes. Coherence is assessed using nine questions. The case studies show that despite many cross-references between the documents and some parallels in the analysis of key constraints, three challenges emerge. First, the diagnostic documents lack coherence. Second, the issues raised in these documents are often not translated into the Country Partnership Frameworks (CPFs). Third, in many cases there is a very weak link between the proposals in the diagnostic documents and the CPF on the one hand, and the policy-based lending programme with its prior actions (PAs) and disbursement-linked indicators (DLIs) on the other. The PAs and DLIs are often unambitious. The paper recommends four reforms to address these shortcomings: (1) Diagnostic documents should indicate which policy reforms are considered most binding and suggest steps to address them. In addition, all CPFs should include an annex with the diagnostic documents’ main operational (policy) proposals and how they are reflected in the CPF. (2) CPFs should explicitly explain how management intends to use country platforms. If their use is not considered feasible, the CPF should explain why. (3) Given that fiscal policy is a powerful tool for decarbonising the energy sector, and given the underperformance in translating reform needs into policy-based programmes and appropriate PAs/DLIs, the Bank should review its approach in this area; the new, planned energy policy would be a first opportunity. (4) As bringing together private and public sector perspectives is key to mobilising private sector investment, the Bank’s management should include public sector perspectives and representatives in the Private Sector Lab, set up by the Bank’s president in 2023. The Bank’s management is currently reforming both its country engagement model and its energy policy strategy. Moreover, it has introduced some organisational changes aimed at fostering a closer cooperation between its various institutions. The recommendations in this paper should be considered in this context. Implementing the recommendations would greatly increase private capital mobilisation, which was a key issue on the agenda for the Financing for Development conference in Seville in July 2025.