World Bank’s Worldwide governance indicators

News Excerpt:

Recently, India’s Chief economic advisor has highlighted concerns over using the World Bank’s Worldwide Governance Indicators in rating assessment by credit rating agencies, especially for emerging economies. And stated that now it is needed for the World Governance Index to be more transparent and less subjective.

Key Points

  • The World Bank's World Governance Index plays a significant part in opaque and non-transparent ways in the credit rating assessment deployed by the three credit rating agencies in assigning letter grades to the credit rating of member countries, particularly emerging markets.

About Worldwide Governance Index:

  • The Worldwide Governance Indicators (WGI) are intended to assist academics and analysts in assessing broad patterns in governance attitudes across countries and throughout time.
  • The WGI collects data from over 30 think tanks, international organisations, non-governmental organisations, and private companies around the world that were chosen based on three essential criteria: 
    • Credible organisations produce them; 
    • They provide comparable cross-country data and
    • They are regularly updated. 
  • The data reflect the various perspectives on governance held by numerous stakeholders worldwide, including tens of thousands of survey respondents and experts.
  • The World Bank's Worldwide Governance Indicators rank 215 nations and territories in six dimensions of governance:
    • ‘Voice and Accountability’;
    • ‘Political Stability and Absence of Violence’; 
    • ‘Government Effectiveness’; 
    • ‘Regulatory Quality’; 
    • ‘Rule of Law’ and 
    • ‘Control of Corruption.’

Issues With worldwide governance indicators:

  • This World Governance Index is a composite of several sub-indices entirely based on the subjective opinions of some so-called expert institutions with no presence on the ground and no idea whether the context in which they are making these judgments is appropriate or apt for the member countries.
  • These indices become an essential part of credit rating agencies' assessment methodology, and they do not reveal the extent to which these indices are implanted in their assessment process, as well as the weights they carry, because there appear to be qualitative overlays on top of qualitative assessments.

Way Forward

  • The most straightforward way for multilateral development banks to assist their member countries in accessing capital for global challenges and development needs is to ensure that their World Governance Index is transparent, less subjective and arbitrary, more suited to the context, involves the participation of developing countries, and that credit rating agencies well understand its limitations.
  • One reform, which does not require shareholder approval but does require World Bank management approval, can assist many emerging economies in being evaluated objectively by credit rating agencies.
    • If their credit rating improves, or at the very least stops being downgraded, the amount of financing cost savings in global capital markets will be in the billions of dollars, which can then be spent on development needs and global public goods.


Prelims PYQ

Q. Which one of the following is not a sub-index of the World Bank’s ‘Ease of Doing Business Index’? (UPSC 2019)

(a) Maintenance of law and order

(b) Paying taxes

(c) Registering property

(d) Dealing with construction permits


Mains PYQ

Q. The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many common characteristics, yet their role, functions and mandate are distinctly different. Elucidate. (UPSC 2013)

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