Bank accused of neglecting poorest countries

20 November 2009

The Bank is under fire for failing to focus on low-income countries in its lending, and concentrating instead on the demands of rich and middle-income countries.

At the annual meetings in Istanbul, a spat developed between donors, including the the UK and the Bank over its failure to substantially increase funding to low-income countries, as it had done for middle-income countries. Douglas Alexander, the UK development minister, publicly expressed concern that the Bank had reduced disbursements of cash to Sub-Saharan Africa by $500 million in the last financial year.

In October, a report by María José Romero of the Uruguay-based NGO ITeM highlighted “a significant difference between the committed amounts and those actually disbursed” by the Bank. The record lending figures announced by the Bank in July (see Update 66) were only commitments – actual disbursements have been far lower, particularly from IDA, the Bank’s low-income country lending arm. The report notes that while IDA commitments increased from $11.2 billion to $14 billion in the 2009 fiscal year, actual disbursements remained virtually static at around $9.2 billion.

The Bank’s attempts to boost lending to the poorest countries by front-loading IDA money allocated for future years also appear to be happening at a sluggish pace. Only $990 million of IDA commitments were front-loaded in the 2009 financial year, and the indications are that front-loaded expenditure in the current financial year will be at a similarly low level.

Meanwhile, although the Bank claims to have raised an extra $8.3 billion from external donors for its various new crisis-related funds (see Update 65), the composition of that number is unavailable. Publicly available figures of new donor money given to IDA and IBRD are well under $1 billion.

In fact, the Bank’s record commitment levels in 2009 were almost entirely thanks to a trebling of lending to middle-income countries through the IBRD (see Update 66). A background paper released by the Bank in advance of the annual meetings confirmed that IBRD lending is likely to rise even further, to $40 billion in fiscal year 2010, and $55 billion to $60 billion over the following two years.

Bank seeks more cash

To maintain this massive increase in lending to middle-income countries, the Bank is seeking donations from member countries to increase its capital base by between $4 billion and $11 billion (see Update 68). In its paper, the Bank claims that without a capital top-up, its loans-to-capital ratio would be stretched to its limit so that IBRD lending after 2012 would have to be purely financed by repayments. This would mean a fall in IBRD lending to around $15 billion a year.

Meanwhile, lending by the International Finance Corporation (IFC), the Bank’s private sector arm, is set to flatline at around $12 billion annually for the next few years. Future lending has been constrained by the fact that IFC capital actually declined in 2009 as a result of falls in the stocks and shares in which it was invested. However the Bank is also seeking to boost IFC lending by asking for between $1.8 billion and $2.4 billion additional capital from shareholder governments, which would boost annual lending levels by an estimated $5.4 billion to $7.2 billion.

Meanwhile, the mid-term review of the current IDA funding window for low-income countries took place in Washington in mid-November. Donors discussed initial priorities for IDA replenishment talks, scheduled to conclude next year (see Update 67), and plans for an IDA ‘crisis-response’ mechanism, which was agreed at the Bank’s annual meetings in Istanbul.

NGOs, however, questioned whether the Bank needs more money. Caroline Pearce, of NGO Oxfam International said: “poor countries need a lot more money to get through the crisis – but this does not necessarily mean more money through the World Bank.”

Bank’s model under fire

The Bank’s excessive focus on rich and middle-income countries was subject to a stinging critique from Harvard academic Alnoor Ebrahim. He argued that the Bank is shifting its lending to middle-income countries which are reliable re-payers. “This growing dependence on large loans undermines the Bank’s anti-poverty mission by shifting its focus away from the poorest countries, while also eroding protections for the most marginalised,” he said.

Ebrahim also argued that reliance on rich donors to finance IDA undermines the Bank’s accountability to the poorest countries and the people it is meant to serve. The Bank’s “governance model has been widely criticised for creating a moral hazard problem,” he argues. “The countries that wield the most voting power are not accountable to citizens who are affected by their decisions.”

The Bank finally released its 2009 Development Policy Lending Retrospective, an uncritical internal review of its budget support lending between 2006-2009 (see Update 66). Unsurprisingly, it found few problems and recommended few changes, highlighting the importance of the Zedillo Commission’s call for greater use of independent reviews (see Update 68).