Final IDA 17 numbers shrink under scrutiny

8 May 2014

In early April, the World Bank finally released the full documentation for the International Development Association (IDA)  17th replenishment, which completed negotiations in December 2013 and will commence lending from July. IDA is the Bank’s low-income country grants and concessional loans arm (see Update 55). The paper formally confirms previous analysis (see Observer Winter 2014) that the size of IDA 17, claimed to be $52.1 billion, is smaller in real terms than IDA 16’s $49.3 billion original agreement.

The IDA 17 report reveals the list of top donors beyond the top four (UK, US, Japan and Germany, see Observer Winter 2014). The biggest change was Spain’s drop from seventh largest donor to fifteenth, after slashing its grants by 62 per cent in nominal terms to €291 million ($405 million). Of the top donors, nominal declines were also recorded for the US, Canada, Netherlands and Italy. Sweden took seventh place with a 6 per cent nominal increase to $1.21 billion. Switzerland joined the top ten donors with a 752 million Swiss franc ($860 million) contribution. New donors included Indonesia ($18.2 million), Malaysia ($27 million) and Thailand (150 million Thai bhat, $4.6 million). China contributed $300 million in grants, up from $161 million in IDA 16.

Those nominal contributions cloak declines in support when accounting for inflation over the last three years. Calculations are complicated by contributions being specified in both local currency and special drawing rights terms, rather than US dollars. Among the top donors, it seems the only significant real terms increases in support to IDA were from the UK and Germany, whose respective 11 per cent and 12 per cent nominal increases outstripped inflation.

The agreement to allow donors to also offer concessional loans, rather than grants, to IDA was taken up by five countries: the UK, France, Japan, Saudi Arabia and China. China pledged a huge $1 billion loan to IDA. According to the report “the grant contribution from China will be partially used to support the concessional loan.” Stripping out the non-grant element of the donor loans from the $52.1 billion headline figure leaves an IDA size of just $48.6 billion, representing a real terms decline of 7.7 per cent.

Harder on poor countries

The final paper confirms a number of changes to the financing framework for IDA countries, including hardening of terms which will result in the poorest countries beginning repayment on IDA credits in six years instead of ten and finishing repayments in 38 years instead of 40. This change was counted as an addition to the IDA 17 resource envelope, despite it just being a hardening of terms, leading the IDA 17 headline figure to be $1.2 billion higher than it would have been otherwise. Vitalice Meja of the Reality of Aid network Africa commented that “IDA is not just about financial flows anymore but an instrument that has been used by the bank to address development challenges. Any changes must therefore be carefully balanced with the development impact of the projects IDA funds and not just the need to serve more with little.” IDA 16 included a similar hardening of terms for the least poor IDA borrowers, so-called blend countries that borrow from both IDA and the Bank’s middle-income country arm (see Update 74). The proposed allocation of transitional support to India was confirmed, with the allocation worth two-thirds the amount it would have been had India not graduated.

The IDA 17 Results Measurement System (RMS) shows an increased focus of donors on Bank project costs. For the first time, the Bank will “publicly disclose IDA project preparation and implementation costs” and it will “pilot calculation of unit costs in three sectors” which will be identified by July. Finally, IDA will have an indicator, “time from project concept note to the first disbursement for investment project financing”, which will speed project preparation from the current 27 months on average towards a target of 19 months, which may undermine the use of participatory approaches in project design and risk assessment.

The RMS also reveals that the Bank’s poverty reduction strategy may focus on larger middle-income countries potentially at the expense of smaller low-income countries. Achieving the Bank’s overarching goal of reducing extreme poverty to 3 per cent by 2030 will, according to the RMS, still leave 7 per cent of the population in IDA countries below the extreme poverty line.