IFI governance


IDA21: Moving beyond a focus on ‘historic’ replenishment

9 April 2024 | Guest analysis

Scene from the IMF and World Bank Group Annual Meetings 2016 in Washington DC. Credit: Simone D. McCourtie / World Bank

This year will see the 21st replenishment of the World Bank Group’s International Development Association (IDA) – the Bank’s arm that provides concessional and grant finance to low-income countries (LICs). In December, at the time of the IDA mid-term review meeting in Zanzibar, Tanzania, World Bank President Ajay Banga argued that the institution’s shareholders must make “the next replenishment of IDA the largest of all time.”

Significantly, IDA21 takes place in the context of a polycrisis – including debt, inequality and climate crises – with manifestations that have severely impacted the capacity of many LICs to fund social services, fight climate change and meet their international human rights obligations. Indeed, the context is more dramatic than it was in 2021, the year of the previous replenishment. Banga’s call comes at a difficult time, in which IDA’s principal donors have stressed fiscal constraints, along with the need to increase defence spending, and with some significant IDA donors such as the US and UK facing general elections this year.

The lack of appetite for additional overseas development assistance commitments by key donors is evident in the WBG’s controversial Evolution Roadmap (see Observer Spring 2024), which has been so far focused on balance sheet optimisation and financial innovations via further expansion of the ‘private finance-first’ approach to development (see Observer Summer 2023, Summer 2017). At a time in which IDA-eligible countries face mounting financing needs to respond to the polycrisis, they have been virtually shut off even from extremely expensive capital markets. This dynamic makes access to concessional and grant lending through IDA ever more important and certainly justifies a significant increase in IDA resources. IDA must remain an essential financing source.

A focus on a “historic” IDA21 replenishment risks obscuring...the policy framework [required] to deliver the...socio-economic transformation of countries in the Global South

Yet, as is the case with the Roadmap, a focus on a ‘historic’ IDA21 replenishment risks obscuring the essential emphasis on the policy framework that IDA21 must have to actually deliver much-needed socio-economic transformation of countries in the Global South as articulated in the 1974 UN General Assembly resolution on the establishment of a New International Economic Order. Unfortunately, it is difficult to argue that IDA has succeeded in making that vision a reality. As a July 2023 report from US-based Center for Global Development (CDG) stressed, “of the 81 countries that were part of  [IDA] in 1996 only 17 have graduated.”

As with the Roadmap, a central question remains: ‘More money for what?’ While the need for more concessional resources is undeniable, a call for a development and rights-based focused policy framework that allows IDA to serve countries and peoples most in need of concessional public finance remains essential. For instance, the issue of jobs and economic transformation (JET) – a Special Theme of IDA20 – is central to all countries, but even more so to IDA countries, many of which are fragile and conflict affected. Revamped Results Management System (RMS) indicators should provide clear evidence of additionality through sustainable, decent and quality job creation. Any JET RMS must also develop a robust methodology to assess the degree to which Bank policies and programmes support economic transformation – e.g. decreases in commodity dependence, increases in economic diversification, and support for technological innovation and domestic technological production. Economic growth and private sector finance leverage performance are inadequate indicators of positive development impact.

IDA support to private sector operations in the spotlight

In 2017, IDA allocated $2.5 billion for a Private Sector Window (PSW) dedicated to subsidising private sector projects financed by the International Finance Corporation (IFC) the Bank’s private sector arm, and the Multilateral Investment Guarantee Agency (MIGA), the World Bank’s risk insurance arm. In the context of IDA20, civil society questioned the continued support of this window, given the risk of diverting scarce concessional finance, in the absence of robust evidence of its development additionality. Notably, and relevant to the focus on the need for a historic replenishment, this broke with previous practice, as IFC was in the past a contributor to IDA resources.

A report by the Bank’s Independent Evaluation Group (IEG) in early 2024 appeared to show improved disbursements of the PSW in IDA20 and has since been used by its supporters. However, the report, as is the case with the Bank more broadly, conflates contributions to ‘market development’ with development outcomes, namely, improved human development and economic transformation. Even by PSW’s own measures, CDG’s Charles Kenny identified three key shortcomings exposed by the report: (i) It has been very slow in utilising its IDA resources; (ii) it hasn’t stopped a slide in overall IFC commitments in the world’s poorest and most fragile countries; and (iii) IFC’s projects in those countries are performing worse than ever – in the first half of the 2010s, over half of IFC projects in IDA countries were rated ‘satisfactory’, while now it is only 36 per cent. Yet, the IEG presents an overall supportive tone on the PSW, missing an opportunity to demand a rethink of this IDA window and to question the relevance of the variables used to determine whether project results are satisfactory.

IDA21 offers a platform to discuss the development model that the Bank will promote in LICs. This includes how the Bank will build resilient, national public finance infrastructure and high quality universal public services. Yet, this debate will take place only if the Bank’s management and shareholders, alongside the wide range of stakeholders that advocate for an IDA replenishment, go beyond the size of its financial envelope. As the lacklustre IDA graduation and economic performance data make plain, additional IDA grant and concessional recourses, as important as they may be, are insufficient. IDA21 must contain a strong and measurable focus on evidence-based policies that support IDA countries to break the cycle of dependency on development finance, and to undertake ecologically sustainable and just economic transformations long sought by the populations and states of the Global South.