By Anna Yukhananov
WASHINGTON, Sept 16 (Reuters) - The World Bank, faced with a tight budget and greater competition for development funds, aims to become more selective in its lending, focusing on fragile states, sub-Saharan Africa, South Asia and other areas where it can have the greatest impact, according to a draft strategy paper obtained by Reuters.
The 42-page paper, presented to the bank's executive board last week, is the first major strategic review under World Bank President Jim Yong Kim.
It offers the first concrete details of how the World Bank plans to fulfill his twin goals of eliminating extreme poverty by 2030 and boosting the incomes of the poorest 40 percent of the population in each country.
However, the strategy paper is still vague about what exact programs the bank will cut or bolster, and how it will change its budget to reflect new priorities and falling revenue.
When asked for comment, World Bank spokesman David Theis declined to elaborate further on the plan.
Founded after World War II to help rebuild Europe, the World Bank later focused on lending money to developing countries in order to improve the lives of poor people.
The global lender is praised for its worldwide reach, stringent standards and long-term focus. But it has also been criticized for avoiding risks, delaying approval of projects, not responding enough to what countries want, and focusing more on pushing money out the door rather than program outcomes.
Kim, who came to the helm of the multilateral development institution a little over a year ago, has launched a major reorganization to change all that, driving an emphasis on flexibility, measurable impact, and evidence, or what he calls "the science of delivery."
The draft strategy acknowledges the World Bank has become less important to the growth of many middle-income countries, which can rely more on private funding and bilateral loans from emerging markets like China.
The World Bank also admits it has limited funds to tackle the needs of the developing world, where new infrastructure projects alone will require $1.5 trillion in funding a year.
Instead, the World Bank wants to reposition itself as a "solutions" bank, offering not only financing but also its knowledge of how to solve common development challenges.
"The World Bank Group's role in knowledge, convening and global advocacy has increased relative to its role in providing finance," the paper said.
Keeping the bank relevant means focusing on areas where other donors are reluctant to go, such as fragile and conflict-affected states, by 2015 home to half of the world's poorest people.
The World Bank said it also plans to use its projects and global presence to share data and promote better policies in areas like climate change.
To help address countries' needs and better coordinate development policies, the bank also plans to work more closely with other development agencies like the United Nations and with philanthropic organizations.
And it wants to promote more private-public partnerships for basic services like health, education and housing - to the consternation of some non-profit organizations that argue such programs have mixed records for helping the poor.
As part of the new strategy, the World Bank also plans to make some cuts to its budget. Operating in fragile states, collecting data to measure countries' progress, and ensuring a global presence have strained the bank's administrative funds.
And less lending to middle-income or stable countries also means less revenue, as the bank has made money from interest-bearing loans.
"Maintaining a minimum scale of operations is important if the World Bank Group is to influence the policy agenda and support clients in delivering effective development solutions," the paper said.
"Although the World Bank Group does not face immediate financial concerns, its financial capacity will need to be strengthened," the paper added.
The bank said it will have to be selective in what it does and make cuts to certain programs, without specifying further. It is also considering relying more on fees for advisory services and on money from trust funds, or earmarked funds from governments for specific projects.
Trust funds already account for one of every 10 dollars the bank disburses to governments, according to the paper.
The new budget will be implemented for the next fiscal year, which begins in July 2014, and may be one of the thorniest issues for the bank to resolve as it decides which departments and programs must shrink.
Changing the bank's internal culture may also pose a threat to the success of the new strategy, according to several outside analysts who reviewed the paper.
Part of the new focus means integrating the work of the bank with the activities of its private sector lending arm, the International Finance Corporation, and the Multilateral Investment Guarantee Agency, which insures investments in difficult environments.
The three agencies work with different clients and may have different approaches to specific projects, creating conflicts of interest.
The details of how the bank will change its internal organization to align with the new strategy will be presented later in an "Implementation Paper."
For now, the draft strategy will go to the governments of the World Bank's members for approval, before being formally presented during the annual meetings of the World Bank and International Monetary Fund in early October. (Reporting by Anna Yukhananov; Editing by Andrea Ricci)