Pressure mounts for an end to IDA’s Private Sector Window as IDA20 negotiations continue

22 September 2021

Cameroonian doctor working on Covid-19 response in April 2021. Credit: Happi Raphael/Shutterstock

As the World Bank and the broader international community pursue their responses to the inequality, debt and climate crises exacerbated by the Covid-19 pandemic (see Dispatch Springs 2021), the 20th replenishment of the International Development Association (IDA20) has attracted significant attention from civil society organisations, labour unions (see Observer Summer 2021) and Heads of State.

The resources for IDA, the World Bank’s low-income country arm, are normally replenished every three years, with the 19th replenishment approved in 2019 for the period of 1 July 2020 to 30 June 2023. However, as almost half of IDA19 resources were committed during its first year in response to the pandemic, the World Bank stressed that in its announcement of IDA 20’s early replenishment that additional resources are required, “for countries to meet their urgent development needs”. According to the World Bank, the IDA20 replenishment process, which aims to support 74 countries between July 2022 and June 2025 “in their recovery from the COVID-19 crisis and transition to green, resilient, and inclusive development”, will be completed in December 2021. The third IDA20 replenishment deputies’ meeting is scheduled for October, following the World Bank’s 2021 Annual Meetings.

The importance of the IDA20 replenishment process was evident in July’s Abidjan Declaration endorsed by 13 African Heads of State and government. It called on “IDA donors to support an ambitious and significant IDA20 replenishment of at least USD 100 billion by the end of 2021,” to help countries meet the sustainable development goals.

There is little justification to divert aid resources to the private sector at this time of crisisOxfam

IDA’s Private Sector Window – draining essential resources from the public sector during a crisis

One point of particular concern in the IDA20 negotiations is the fate of IDA’s Private Sector Window (PSW). The PSW was established in the IDA18 replenishment (see Observer Winter 2017), with the allocation of $2.5 billion of IDA resources to the World Bank’s International Finance Corporation (IFC), its private-sector investment arm, and the Multilateral Investment Guarantee Agency (MIGA), its political risk insurance arm. The PSW transformed IFC from a contributor to IDA to a net recipient of IDA resources. The PSW is intended to “catalyze private sector investment in IDA-only countries, with a focus on fragile and conflict-affected states” and forms a key part of the Bank’s Maximizing Finance for Development strategy (see Observer Spring 2020,  Summer 2017).

A September article by economist Jayati Ghosh and Belgium-based CSO Eurodad’s Farwa Sial in online magazine Project Syndicate criticised the PSW for draining scarce public finance away from IDA during the pandemic, stressing the lack of evidence of development impact and “poor targeting of development-related projects in the context of responses to COVID-19.” Reinforcing these concerns, in June international CSO Oxfam recommended that the PSW be closed in IDA20 and resources redirected “either to expanding [the] crisis response window (e.g. for vaccines) or back to IDA for…building long term public health, education or social protection systems.” Oxfam argued that the pandemic is an important reminder of the limits of market-based solutions, stressing that, “there is little justification to divert aid resources to the private sector at this time of crisis and that the Bank and its donors should be maximizing public sector investments through IDA20.”

In April, Charles Kenny from US-based Center for Global Development wrote a blog calling for a large IDA20 replenishment, but with the exclusion of the PSW, arguing that “the Window (and the IFC as a whole) is particularly poorly designed as a crisis response tool.”

Despite concerns about the PSW and the calls made in the Abidjan Declaration, the Co-Chairs’ Summary issued at the end of the second IDA20 Replenishment Meeting on 28-30 June, made several references to the PSW and the key role of the private sector. It limited IDA20 financing scenarios to an upper limit of $95 billion, of which $24.9 billion would be comprised of new donor contributions.