World Bank Launches More Robust, Transparent Business Climate Rankings

What’s in today’s article?

• Why in News?
• About Ease of Doing Business Rankings
• Why Did the World Bank Discontinue the Rankings?
• News Summary

Why in News?

• The World Bank has unveiled new methodology and improved safeguards, called “Business Ready”, for assessing the business climate in up to 180 countries.
• This was done after embarrassing revelations of data irregularities and favouritism toward China forced it to cancel its flagship “Ease of Doing Business” rankings two years ago.

About Ease of Doing Business Rankings

• The ease of doing business index was an index created by the World Bank Group, following the release of World Development Report 2002.
• The objective was to provide an assessment of objective measures of business regulations and their enforcement across 190 economies on ten parameters affecting a business through its life cycle.
• The 10 parameters were –
  • Starting a Business, Dealing with Construction permits, Electricity availability, Property registration, Credit availability, Protecting minority Investors, Paying Taxes, Trading across borders, Contracts enforcement, and Resolving Insolvency.
• It ranks countries on the basis of Distance to Frontier (DTF) score that highlights the gap of an economy with respect to the global best practice.
  • For example, a score of 75 means an economy was 25 percentage points away from the frontier constructed from the best performances across all economies and across time.

Why Did the World Bank Discontinue the Rankings?

• In September 2021, the World Bank announced it was “discontinuing” its “Doing Business” report.
• It cited the outcome of an investigation that found the World Bank had changed the rankings under pressure of funding.
  • According to an investigation conducted by Washington-based law firm WilmerHale, World Bank staff members changed data on China to improve its ranking on the ease of doing business.
• This wasn’t the first time the rankings had come in for criticism.
  • A 2008 internal evaluation report highlighted their lack of transparency, while in 2018 the Bank’s chief economist, Paul Romer, resigned decrying data manipulation.
• Flawed Methodology – 
  • It did little to distinguish between good procedures, such as ensuring compliance with environmental rules, and unnecessary red tape, such as requiring yet another stamped and notarised copy of a document.

News Summary

• The World Bank has unveiled new methodology and improved safeguards for assessing the business climate in up to 180 countries.
• A pilot edition of the new replacement annual series called “Business Ready” will be published in the spring of 2024.
  • It will cover an initial group of 54 economies in Asia, Latin America, Europe, the Middle East and Sub-Saharan Africa.
  • More countries will be added in the next two years as the bank refines its methodology and ramps up the new project.
• The “Business Ready” project aims to help countries attract investment and boost jobs and productivity to accelerate development.
• “Business Ready” was shaped by recommendations from World Bank experts, governments, the private sector, and civil society groups.
• It includes for the first time worker rights, as defined by the International Labor Organization, while acknowledging that regulation can also have positive aspects.

Q1) Why was the World Bank established?

The World Bank was established in 1944 to help rebuild Europe and Japan after World War II. Its official name was the International Bank for Reconstruction and Development (IBRD). When it first began operations in 1946, it had 38 members. Today, most of the countries in the world are members.

Q2) What is the purpose of World Development Report?

The World Development Report (WDR) is an annual report published since 1978 by the International Bank for Reconstruction and Development (IBRD) or World Bank. Each WDR provides in-depth analysis of a specific aspect of economic development.

Source: World Bank to stop ‘ease of doing business’ report as probe finds ‘data juggling’ | UNCTAD