The Cyclicality of IFC Investments :
            To Be, or Not to Be, Procyclical
This paper presents empirical evidence
            on the cyclicality of investments made by the International
            Finance Corporation over the past 20 years and explores
            their implications for the International Finance
            Corporation’s investment strategy in the aftermath of the
            COVID-19 pandemic. An Independent Evaluation Group report on
            World Bank Group operations during the global financial
            crisis found that the International Finance Corporation’s
            role was “neutral to procyclical,” as it “did not increase
            investments in response to the crisis.” This study provides
            a more detailed assessment of the cyclical patterns of
            International Finance Corporation investment activity by
            using a longer time horizon of assessment rather than a
            specific point-in-time-episode, differentiating original
            commitments from disbursements, and disaggregating
            investments across regions and industries. The results of
            the study confirm that International Finance Corporation
            investment activity was overall procyclical during 2000–19,
            but this general pattern masks differences over time and
            across regions and industries. The paper also examines the
            relation between the cyclical patterns of International
            Finance Corporation investment activity and its financial
            performance. The results suggest that the procyclicality is
            linked with sounder asset quality (measured by nonperforming
            loan ratios) and higher profitability (measured by
            risk-adjusted return on capital), underscoring that prudent
            portfolio risk management and profit seeking strategies have
            coexisted with International Finance Corporation investment
            procyclicality. The procyclicality of International Finance
            Corporation operations is consistent with its institutional
            mandate of supporting private sector investment, which is
            usually procyclical, and the need to maintain an AAA credit
            rating. Nevertheless, the facts that commitments became less
            procyclical after the 2008 crisis and the cyclicality of
            investments varies across regions and industries suggest
            that there is scope for easing procyclicality without
            jeopardizing the International Finance Corporation’s
            financial sustainability. In this context, the International
            Finance Corporation’s COVID-19 Fast-Track Facility is a case
            in point for easing investment procyclicality. Moreover,
            from a medium-term perspective, a less procyclical
            investment strategy may be more in line with the
            International Finance Corporation’s 3.0 and Upstream
            initiatives, which aim at building pipelines of sound
            projects and prioritizing returns through long-term risk
            premia and, hence, are undeterred by short-term cyclical volatility.