# **2. Background and Related Literature**

Over the last decade, trust funds at the World Bank have proliferated. The total number of active trust funds considered in this paper exceeded 1,200, excluding the largely independent financial intermediary funds<sup>4</sup> (FIFs) and trust funds at the International Financial Corporation (IFC). These funds disbursed more than 22.5 billion USD over the fiscal years 2002‐2012, our sample period.<sup>5</sup> To put this number into perspective, gross disbursements by IDA, the fund accounting for most concessional lending by the World Bank, amounted to 10.9 billion USD in the 2012 fiscal year. Figure 1 shows the significant increase in trust fund disbursements over the last decade and how its volume compares to IDA funds. Most disbursements were made to specific countries, while smaller shares are allocated to a region or for global goods. Donors are very heterogeneous in their use of trust funds to deliver their foreign aid. In the 2002‐2012 sample period, the largest sovereign contributors to World Bank funds, excluding FIFs, were the United Kingdom, the European Commission, the United States, and the Netherlands.<sup>6</sup> According to the official narrative, trust funds fill ‘gaps in the multilateral system’ with respect to global public goods and following “emergencies such as natural disasters, disease outbreaks, and the end of armed conflict, where donors want to coordinate their bilateral aid and where the MDBs do not grant resources to engage on a sufficient scale” (IEG 2011a: 5). However, a systematic evaluation of the cross‐country allocation patterns of trust fund aid is still lacking. In this paper, we focus on the criteria of policy selectivity and poverty selectivity that largely guide IDA allocations, and that reflect a widespread belief about country characteristics conducive to the productive use of aid funds.

Three actors are involved in the recent trust fund trend: donor countries, the World Bank, and recipient countries. Donor governments may use trust funds to target their foreign aid to priority countries and development issues, while, and in contrast to bilateral aid, delegating responsibility for its management and implementation to the multilateral organization. Evidence collected by the Bank’s evaluation unit (IEG 2011a) through structured interviews with 55 officials of eight donor countries finds that six out of eight donor countries use trust funds to target priority issues or countries. From the perspective of the multilateral organization, trust funds allow expanding its global role and operations, and increasing its staff and assets under management.

From a recipient country perspective, trust funds may have several positive implications. For middle‐income countries seeking technical assistance but are reluctant to borrow for this purpose, trust funds make technical assistance available at grant terms (IEG 2011a: 7). Trust funds have also supported post‐conflict and post‐disaster countries and territories that are ineligible to borrow from the IDA or the International Bank for Reconstruction and Development (IBRD) (e.g., Timor‐Leste, Aceh in Indonesia, West Bank and Gaza). Moreover, trust funds have encouraged the provision of

> 4 Programs funded from FIF are typically monitored by separate agencies, such as GAVI, the Vaccine Alliance, or the Global Fund, and not by World Bank staff. The Bank mainly provides financial administration for FIFs. 5 The fiscal year at the World Bank runs from July 1 to June 30.

> 6 This information is based on contributions data with donor‐specific information.

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