Developing the private sector : a challenge for the World Bank Group

In the past few decades public sector activity has expanded greatly in many developing countries. This expansion has frequently stifled private initiative and market forces and has reduced the flexibility with which economies can respond to the rapid changes in the international environment. This presents an opportunity and a challenge for the World Bank Group to intensify its efforts and find new ways to support private sector development (PSD) in the developing world. PSD requires three main elements: 1) a supportive business environment; 2) the services in infrastructure and human resource development necessary to permit private enterprises to function effectively; and 3) a financial system that provides the incentives and institutions needed to mobilize and allocate financial resources efficiently. In all three areas, government has a critical supporting role to play. In fact, the reform of government policy and institutions is a critical component of better performance in the private sector. The Bank Group has traditionally carried out a significant amount of activity and financing that supports PSD, but gaps remain in some areas of the Bank's PSD work. The report explores how private sector development can contribute to overall development and recommends a variety of ways to harness the energies of the institutions in the Bank Group.