IDA XIV replenishment: substantial increase in new resources but commitments still inadequate

Funds increase by 25% to 81 poorest countries

24 February 2005

At a recent meeting in Washington, donor countries agreed to a 25 per cent replenishment of funds to the International Development Association (IDA), the World Bank arm that provides assistance to the world’ s 81 poorest countries. This agreement forms the biggest boost to IDA resources in 20 years, yet still falls short of the 30 per cent increase to which donor countries had agreed at the end of last year. Civil society organisations have cautiously welcomed the increase as a first step to alleviating poverty in some of the World’s poorest countries yet reiterate that it is insufficient and falls short of targets.

The 25 per cent increase in resources will make at least $34 billion available over the next three years starting in July. Of this, about $18 billion will come from new contributions from 40 donor countries.

Bank President James Wolfensohn celebrated this increase in IDA resources as “a major step forward in the international community’s efforts to fight poverty and achieve the Millennium Development Goals.”

pledges still fell short of the 30 per cent

The UK claims to have contributed $2.8 bn of the $18bn in new money from donor countries, which would make it the second biggest donor after the US. International development secretary Hilary Benn claimed “it demonstrates the UK’s commitment to increasing aid to the poorest countries, particularly in Africa”.

The Bank’s Geoff Lamb claims that the sharp disagreements over the role of grants and loans that were evident three years ago had been replaced by “strong consensus”, yet a compromise appears to have been reached between Washington’s preferred approach of setting targets for the overall share of grants and the concerns of others about undermining a fund that relies on repayments. IDA disbursements will apparently be divided between loans and grants in the following way: countries that are struggling with their debt (most of them in sub-Saharan Africa) will receive grants. Slightly less fragile countries will receive a mix of grants and loans with very low preferential rates and long-term maturities. Others will receive interest free loans with a maturity of twenty to forty years and a service commission of 0.75 per cent of the amount lent. The Bank expects that just under 30 percent of IDA funds will be paid out in grants- higher than the previous 20 percent share but below the 50 per cent figure called for by the US.

Civil society organisations have given a mixed reception to the replenishment. Some have heralded it as a step to alleviating poverty in some of the World’s poorest countries, while calling for a doubling of development aid and a commitment by the G7 to 100% debt cancellation. Other CSOs have raised concerns about the damaging effects IDA conditionality has on the world’s poorest countries. Action Aid’s Patrick Watt said “the increase in resources must be linked to reform of the conditions attached to World Bank loans in poor countries”, and urged the UK to continue to push for that.